This 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.
- Economic Policy Uncertainty
- Stock Returns
- Generalized Dynamic Factor Model
- Corporate Environmental Responsibility