This chapter examines changes in US monetary policy uncertainty (ΔMPU) and fiscal policy uncertainty (ΔFPU) on stock returns while controlling for downside risk, lagged dividend yield, and time series patterns. Testing G7 markets consistently shows that both ΔMPU and ΔFPU have significant negative impacts on stock returns. Evidence shows that any downside risk, ΔMPU or ΔFPU in US market will soon be transmitted to G6 industrial markets and the impacts are extended to two months. These risk and uncertainty premiums should be priced in the stocks of the major industrial markets.
Thanks to Austin Chair fund for research support and Professor Bang Nam Jeon, editor for helpful comments. All errors remain my responsibility.
Chiang, T.C. (2020), "Global Stock Market Prices Response to Uncertainty Changes in US Monetary and Fiscal Policies", Jeon, B.N. and Wu, J. (Ed.) Emerging Market Finance: New Challenges and Opportunities (International Finance Review, Vol. 21), Emerald Publishing Limited, Bingley, pp. 131-147. https://doi.org/10.1108/S1569-376720200000021008
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