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Economic policy uncertainty and short-term reversals

Author

Listed:
  • Zhaobo Zhu

    (Audencia Business School)

  • Licheng Sun

    (Old Dominion University, Strome College of Business)

Abstract

In this article, we provide new evidence on the impact of economic policy uncertainty (EPU) on asset pricing. Specifically, we find that short-term return reversals are stronger following high-EPU periods, likely due to an uncertainty-induced decrease in stock market liquidity. However, EPU does not appear to have a significant effect on accounting-based anomalies, possibly because these anomalies are not driven by stock illiquidity. Our findings suggest that EPU affects short-term asset prices mainly through stock liquidity. However, EPU may contain incremental information beyond stock liquidity. Moreover, the arrival of the latest fundamental information could significantly mitigate the effect of EPU on short-term reversals.

Suggested Citation

  • Zhaobo Zhu & Licheng Sun, 2024. "Economic policy uncertainty and short-term reversals," Post-Print hal-04691597, HAL.
    • Handle: RePEc:hal:journl:hal-04691597
    Note: View the original document on HAL open archive server: https://hal.science/hal-04691597
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    References listed on IDEAS

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    Keywords

    Economic Policy Uncertainty; Short-Term Reversals; Illiquidity;
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