Can the news tell us anything about uncertainty that the markets don’t?

This study investigates the dynamic interactions between changes in economic policy uncertainty and movement in price and trade volumes across a sample of 21 countries. Within a vector autoregressive framework, we find that an expectation of uncertainty drives market movement for 18 countries. Our analysis in terms of VAR coefficients, granger causality tests and impulse response functions show a significant market reaction to an expectation of uncertainty, implying that the markets are more sensitive to politically driven economic policy change than media commentators. In light of perceived policy change researchers are cautioned against relying solely on media generated measures of uncertainty when investigating market movements.