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Journal of Finance & Economics Research - Volume 10, Issue 2 2025
By Abdul Rehman, Muhammad Zeeshan, Hafsa Iqbal
10.20547/jfer2510204
Keywords: Economic Policy, Uncertainty, Stock Market Returns, Pakistan Stock Exchange, E-GARCH, ARCH-LM
This study spotlights the impact of Economic Policy Uncertainty (EPU) on stock returns in the Pakistan Stock Exchange (PSX) across six key sectors: cement, automobile assembler, automobile parts and accessories, engineering, oil and gas marketing, and refinery. Utilizing panel data from January 2015 to December 2023, the research employs EGARCH-Bivariate modelling to analyse the dynamic relationship between EPU and stock returns. The findings reveal a statistically significant correlation across all sectors, indicating that PSX investors often perceive uncertainty as an opportunity rather than a risk, favouring investments during downturns to secure future long-term profits. This research enhances the understanding of how uncertainty influences stock market performance in emerging economies like Pakistan. It provides critical insights for investors, policymakers, and market participants, aiding in portfolio management and strategic decision-making. The study contributes to the broader financial literature by shedding light on the relationship between EPU and market dynamics in emerging markets.
Submission Date: 17 Jun, 2025 Reviews Completed: 30 Jul, 2025Acceptance Date: 20 Aug, 2025 Publication Date: 30 Nov, 2025