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Economic policy uncertainty and the cost of equity capital

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  • Yizhi Wang
  • Jingze Zhang
  • Qiaoqiao Zhu

Abstract

In this paper, we investigate the role of economic policy uncertainty (EPU) in the cost of equity capital. Our findings suggest that the relationship between EPU and the security market line (SML) varies cross‐sectionally. Following periods of high EPU, the SML tends to slope upward, whereas it exhibits a downward slope following periods of low EPU. In the time‐series analysis, we observe that EPU significantly and positively affects the beta premium. Further evidence shows that investors may adjust their portfolios, shifting investments from higher‐risk assets to lower‐risk assets when confronted with high EPU.

Suggested Citation

  • Yizhi Wang & Jingze Zhang & Qiaoqiao Zhu, 2026. "Economic policy uncertainty and the cost of equity capital," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 49(1), pages 128-153, March.
    • Handle: RePEc:bla:jfnres:v:49:y:2026:i:1:p:128-153
    DOI: 10.1111/jfir.12460
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