Policy risks, technological risks and stock returns: New evidence from the US stock market ¬リニ

a r t i c l e i n f o Keywords: Stock returns Policy risks Technological risks US stock market This study examines the role of policy and technological risk on U.S. stock returns. The results will highlight the effect of economic policy uncertainty on stock returns, given that such uncertainty rose to historically high levels after the recession of 2007–2009. In our case, uncertainty is related to tax, spending, and monetary policies. To identify the effect of different uncertainties (shocks) related to stochastic driving processes on stock returns, the empirical methodology allows factors relative to capital and labour tax rates, government spending, monetary policy and total factor productivity to play a leading role in the process of affecting stock returns, whereas the econometric methodology builds upon the stochastic volatility in mean (TVP-SVM) model by Koopman and Hol Uspensky (2002). The empirical findings document the importance of both policy and technological risks, especially after the recent financial crisis event. The findings also carry substantial implications for asset pricing modelling, indicating not only the time-varying character of shocks but also the asymmetric effect of such shocks on stock returns. In a recent paper, Born and Pfeifer (2014) analyse the negative effect of policy risk, defined as the uncertainty about fiscal and monetary policy on the business cycle process. In their work, uncertainty is the dispersion of the economic shock distribution, in the sense that future shocks are drawn from a wider distribution, as opposed to the ex-post volatility resulting from on average more extreme shock realization. The goal of this empirical study is to explore the role of policy risk, based on the former definition, on U.S. stock returns. It seems worthy to attempt to analyse the effect of economic policy uncertainty on stock returns, given that such uncertainty rose to historically high levels after the 2007–2009 recession because of uncertainty about tax, spending, and monetary policies. In addition, the rise in policy uncertainty slowed recovery from the recession by causing businesses and households to cutback or postpone investment , hiring and consumption. In the world of corporate finance and capital markets, financial risk management turns out to be a very difficult task, especially in the presence of economic policy uncertainty. The literature highlights a number of research areas in which novel studies have contributed significantly to the analysis of financial risk management when there is economic policy uncertainty. Alexopoulos …