The Impact of Economic Policy Uncertainty on US Transportation Sector Stock Returns

Abstract

Development of transportation sector is a fundamental prerequisite for economic growth, which is sensitive to variations in domestic and international economic policies. In this vein, we investigate how domestic and global economic policy uncertainty affects stock returns of transportation sector firms in the United States. We deploy autoregressive distributed lag bounds testing method to investigate the relationship of monthly returns of Dow Jones Transportation Average with economic policy uncertainty, global economic policy uncertainty, and other macroeconomic factors. Our findings suggest that economic policy uncertainty at the national and international level negatively influences the stock returns of the transportation sector. The paper also demonstrates a positive effect of industrial production and consumer’s confidence on returns of U.S. transportation sector. The empirical findings offer useful policy implications to the stakeholders of the US transportation sector.