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Economic Policy Uncertainty (EPU) and Nordic (Sweden and Denmark) stock market performance
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Bachelor's thesis
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en
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28+8
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The purpose of this thesis is to study how the Economic Policy Uncertainty (EPU) index affects the stock market performance in Sweden and Denmark (two Nordic countries). EPU index is a news-based measure for uncertainty developed by Baker, Bloom, and Davis (2016) and it captures a wide range of conditions of economic uncertainty that stem from governmental and monetary policy uncertainty. Specifically, I will conduct a regression analysis on how Sweden’s and Denmark's country specific EPU index impacts stock market returns and volatility in these countries and on how EPU interacts with indicators of economic condition. Previous research has shown that higher EPU index has negative effects on GDP growth, corporate investments, stock market performance, as well as many other economic factors. I find that during the time period of 2004-2021, higher EPU does lead to higher volatility and worse economic conditions as well as an increase in EPU leading to a decrease in stock market returns (monthly log excess returns decrease in Sweden by −0.83%). However, the strength and significance of results differ by country with the results in Sweden being statistically significant with results in Denmark mostly not.