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The macro and asset pricing implications of rising Italian uncertainty: Evidence from a novel news-based macroeconomic policy uncertainty index

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  • Donadelli, Michael
  • Gufler, Ivan
  • Pellizzari, Paolo

Abstract

We develop a new monthly and daily index of economic policy uncertainty for Italy based on articles from the Sole 24 Ore (a popular Italian business daily newspaper). VAR investigations document that an unexpected rise in the Sole 24 Ore news-based EPU index (EPU24) has mild effects on the real economic activity. Cross-sectional asset pricing tests then show that both monthly and daily EPU24 shocks command a positive risk premium. A standard event study finally indicates the presence of statistically significant positive cumulative abnormal returns (CARs) in the energy sector following different categories of policy-related events. Negative and significant CARs in the financial sector are instead found to be generated by international-related events and political elections.

Suggested Citation

  • Donadelli, Michael & Gufler, Ivan & Pellizzari, Paolo, 2020. "The macro and asset pricing implications of rising Italian uncertainty: Evidence from a novel news-based macroeconomic policy uncertainty index," Economics Letters, Elsevier, vol. 197(C).
    • Handle: RePEc:eee:ecolet:v:197:y:2020:i:c:s0165176520303669
    DOI: 10.1016/j.econlet.2020.109606
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    More about this item

    Keywords

    Policy-related news; Uncertainty; RBC; Stock returns;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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