A0209
Title: Foreign economic policy uncertainty and the U.S. equity returns
Authors: Mohammad Jahan-Parvar - Federal Reserve Baord of Governors (United States) [presenting]
Jamil Rahman - Yale University (United States)
Yuriy Kitsul - Federal Reserve Board (United States)
Beth Anne Wilson - Federal Reserve Board (United States)
Abstract: The purpose is to document the predictive ability and economic significance of foreign economic policy uncertainty (EPU) for U.S. equity returns. After orthogonalizing global economic policy uncertainty (foreign EPU) with respect to the U.S. EPU, it is found that it has significant predictive power for aggregate stock returns and returns of portfolios constructed on size, investment, capital expenditure, and foreign sales in 6 to 12-months ahead horizons. It is found that foreign EPU shocks operate through firms' cash flow channels, they do not affect discount rates or equity premia, and that foreign EPU-sensitive firms respond to an adverse foreign EPU shock by altering their credit demand and investment outlays. However, their labor demand does not change much.
