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Economic Policy Uncertainty and Stock Return Momentum

Author

Listed:
  • Garima Goel

    (Finance and Accounting Area, Indian Institute of Management Indore (IIM Indore), Indore 453556, India)

  • Saumya Ranjan Dash

    (Finance and Accounting Area, Indian Institute of Management Indore (IIM Indore), Indore 453556, India)

  • Mário Nuno Mata

    (ISCAL-Instituto Superior de Contabilidade e Administração de Lisboa, Instituto Politécnico de Lisboa, Avenida Miguel Bombarda 20, 1069-035 Lisboa, Portugal
    Polytechnic Institute of Santarém, School of Management and Technology (ESGTS-IPS), 2001-904 Santarém, Portugal)

  • António Bento Caleiro

    (Departamento de Economia, Universidade de Evora, Largo Dos Colegiais, 2, 7002-554 Evora, Portugal)

  • João Xavier Rita

    (ISCAL-Instituto Superior de Contabilidade e Administração de Lisboa, Instituto Politécnico de Lisboa, Avenida Miguel Bombarda 20, 1069-035 Lisboa, Portugal)

  • José António Filipe

    (Departamento de Matemática, Iscte-Instituto Universitário de Lisboa, ISTAR-Iscte, BRU-Iscte, 1649-026 Lisboa, Portugal)

Abstract

This paper investigates the relationship between economic policy uncertainty (EPU), an index capturing newspaper coverage of policy-related issues, and momentum profits. Momentum remains an unexplained anomaly. Our findings reveal a statistically negative association between EPU and hedge momentum portfolios. The short side portfolio dominates this effect as compared to the long side. EPU is statistically significant after controlling for macroeconomic variables. Furthermore, the paper conducts a battery of time series analysis, which highlights that EPU has a causal relationship with the hedge portfolio in the short run. On the other hand, the hedge portfolio has a long-term relationship with EPU, not the other way around.

Suggested Citation

  • Garima Goel & Saumya Ranjan Dash & Mário Nuno Mata & António Bento Caleiro & João Xavier Rita & José António Filipe, 2021. "Economic Policy Uncertainty and Stock Return Momentum," JRFM, MDPI, vol. 14(4), pages 1-17, March.
    • Handle: RePEc:gam:jjrfmx:v:14:y:2021:i:4:p:141-:d:522949
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    References listed on IDEAS

    as
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