The impact of economic policy uncertainty on stock returns: The role of corporate environmental responsibility engagement

Abstract

AbstractThis paper examines the impact of economic policy uncertainty (EPU) on market‐driven common stock returns and individual‐driven idiosyncratic stock returns as well as explores the role of corporate environmental responsibility (CER) engagement on this impact based on a sample of 175 firms listed on Shanghai and Shenzhen 300 index from 2008 to 2016. The results show that an increase in EPU significantly reduces the market‐driven common stock returns but increases individual‐driven idiosyncratic stock returns. Further, EPU has a lower negative impact on the common stock returns of high‐CER firms comparing with low‐CER firms. EPU has a higher positive impact on idiosyncratic stock returns of high‐CER firms comparing with low‐CER firms. Overall, the findings of this paper extremely relevant for the government, investors and firm's managers and can be utilised for policy and investment decision‐making.