Acceso usuarios
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Raul Gomez-Martınez
[1]
Purpose– This study aims to analyse the effects of Economic Policy Uncertainty (EPU) on the return of growth/value and small/large-cap stocks during expansionary and recessionary periods across a conditional distribution. Design/methodology/approach– The authors selected a sample covering the period between 01/1995–05/ 2021. Quantile regressions were applied to the EPU and Russell indices. Business cycles were established following the NBER. Findings– The results show that EPU has a negative effect on stocks with the intensity of the effect depending on the stock’s profile. Small-cap and growth stocks were found to be most sensitive to EPU, especially during recessions. The negative effect is moderated by the economic cycle but is progressively diluted at the lower tail of the stock return distribution. Practical implications– The findings shed more light on investment strategies for growth/value investors that pursue opportunities arising from a changing economic cycle. Originality/value– This study makes the following contributions: (1) explores the impact of EPU on the returnof different stocksacrossaconditionaldistribution,and(2)providesevidenceonhowtheeconomiccycle influences EPU impact on growth/value stocks and small/large stocks. Keywords Economic policy uncertainty, Stock market returns, Limited arbitrage, Economic cycles, Behavioural finance Paper type Research paper
