Economic Policy Uncertainty and Stock Market Index: Fresh Insights from Augmented-ARDL and Multiple Structural Breaks

Abstract

This study provides unique insights into the link between economic policy uncertainty (EPU) and stock market index in Sub-Saharan African (SSA) countries. Basically, the dearth of evidence in this perspective, especially in the context of SSA motivates this new assessment. Thus, on account of the monthly longitudinal series for 11 SSA countries over 2014M1–2023M6, the novel multiple structural break test in panel (MSBP) and cross-sectional ARDL (CS-ARDL) provide the following upshots: first, the high level of EPU worsens the region’s stock index in the short run; second, there is a long-term negative but insignificant effect of EPU on the stock index; third, EPU significantly reduces the stock index in the three identified structural break regimes, but outside it, it is insignificant; fourth, the devastating influence of EPU on stock prices is more pronounced during the COVID-19 era demonstrating that the response of the region’s stock market to EPU is highly sensitive to global shocks. The policy implication from the major findings is for the government authorities to put up plans that can strengthen the stock markets’ resilience to economic policy-induced uncertainty.