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The Effects of Economic Policy Uncertainty on the Indian Stock Market

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  • Shah Saeed Hassan Chowdhury
  • Hassan Ahmed

Abstract

This paper investigates the impact of macroeconomic variables and economic uncertainty on the size of portfolio returns in the Indian stock market. Results show that economic policy uncertainty—in addition to macroeconomic variables—can play a big role in explaining the returns of Indian stocks. Since investors cannot reduce such risk by constructing well-diversified portfolios, it is in fact a source for systematic risk, which must be considered by investors when making investment decisions. However, Granger-causality tests show that there is a unidirectional causality running from portfolio returns to economic policy uncertainty. That is, the Indian stock market predicts economic policy uncertainty, not the other way around.

Suggested Citation

  • Shah Saeed Hassan Chowdhury & Hassan Ahmed, 2023. "The Effects of Economic Policy Uncertainty on the Indian Stock Market," International Business Research, Canadian Center of Science and Education, vol. 16(1), pages 1-54, January.
    • Handle: RePEc:ibn:ibrjnl:v:16:y:2023:i:1:p:54
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    References listed on IDEAS

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    5. Batabyal, Sourav & Killins, Robert, 2021. "Economic policy uncertainty and stock market returns: Evidence from Canada," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    6. Mohamed Arouri & David Roubaud, 2016. "On the determinants of stock market dynamics in emerging countries: the role of economic policy uncertainty in China and India," Economics Bulletin, AccessEcon, vol. 36(2), pages 760-770.
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    Cited by:

    1. Ujjal Chatterjee, 2023. "Economic Policy Uncertainty, World Uncertainty, and Economic Growth: Evidence from a Bayesian Vector Autoregression Analysis," International Business Research, Canadian Center of Science and Education, vol. 16(8), pages 1-28, August.

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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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