Lamichhane, Srijana (2025) The Impact of Economic Policy Uncertainty on Stock market volatility: Evidence from the UK and USA. Masters thesis, n/a.

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Abstract

The study examines the influence of economic policy uncertainty (EPU) on stock market Volatility in the Financial Times Stock Exchange (FTSE 100) and the New York Stock Exchange (NYSE), from 2012 to 2024. The moderating effects of Bitcoin (USD) returns, and the USD/GBP Exchange Rate is also investigated because of their increasing relevance in global financial integration and portfolio diversification. Using ARCH-GARCH family models, the findings validate that EPU contributes significantly to volatility, although its effect varies in the two markets.

For FTSE, U.K. EPU has a negative correlation with volatility, meaning that greater policy uncertainty lowers investors’ activity and risk-taking attitudes, eventually cushioning price fluctuations. The exchange rate has a consistent and strong moderating effect, while Bitcoin has minimal effect. Conversely, for the NYSE, the findings indicates that increased U.S. EPU is associated with increased stock market volatility and indicates the responsiveness of U.S. equities to domestic policy shocks. The exchange rate is significant moderator, amplifying the volatility effect of EPU, while Bitcoin’s moderating effect is weaker and often insignificant.

Overall, the results highlight that while EPU is a significant predictor of stock market volatility, its impact is not symmetric across regions. Exchange rate always acts as a powerful moderator, indicating the cross-market linkages between currency markets and equity performance in worldwide economies. Bitcoin, while continuing to be an emerging and volatile asset, displays partial moderating effects, indicative of its growing but unstable engagement in shaping financial trends. These findings are extremely useful to investors, portfolio managers, and policy makers as they underscore the necessity of considering the macroeconomic uncertainty and global financial linkages in assessing stock market risk.

Keywords: Economic Policy Uncertainty (EPU), Stock market Volatility, Exchange Rate, Bitcoin, ARCH-GARCH, NYSE, FTSE 100.

Item Type:	Thesis (Masters)
Status:	Published
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
School/Department:	London Campus
URI:	https://ray.yorksj.ac.uk/id/eprint/13944

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