Conference Agenda

We document that foreign economic policy uncertainty (EPUF ) has signicant incremental

predictive power for excess U.S. stock returns in the presence of domestic EPU,

both in aggregate and for returns of portfolios constructed on rm characteristics, for 6

to 12-months-ahead horizons. We nd that EPUF shocks primarily transmit to equity

prices through cash

ow news rather than the discount rate news channel. We examine

whether responses of select macro-nancial variables to an adverse EPUF shock are

consistent with this transmission mechanism. Corporate investment outlays, payouts,

and aggregate credit demand decline in response to such a shock.

This study investigates whether managerial discretion over share repurchases affects institutional investments under market uncertainty. Considering that share repurchase schemes can provide option-like downside protection, we argue that managerial discretion over share repurchases attenuates the negative impact of adverse market conditions on institutional investments. The moderating effect through a potential price floor is more pronounced for short-horizon institutional investments that are tied to near-term performance and investor flows. However, the moderating effect is offset by information disclosure quality of target firms, as the disclosure quality reduces institutional investors’ reliance on repurchase-related signals to distinguish firms that are more resilient to market volatility from those that are less capable of withstanding uncertainty. Using 2018-2023 Chinese data, we find evidence to support our hypotheses. These findings have important implications in terms of capital allocation and policy interventions.

Using the news-based UK economic policy uncertainty (EPU) index developed by Baker et al. (2016) and employing unique hand collected interest rate (IR) swaps data for a sample of UK non-financial listed firms from 1999 to 2021, we find that a one standard deviation increase in EPU decreases firms' usage of swapping to floating-rate debt by 16% and increases their usage of swapping to fixed-rate debt by 10%. Furthermore, we find that a one standard deviation increase in EPU reduces firms' final floating-rate debt by 3%. These results are both statistically and economically significant. Our findings show that firms that exhibit negative cash flow IR sensitivity, those faced with financial constraints and those dependent on bank debt, significantly decrease their usage of swapping to floating-rate debt and increase their usage of swapping to fixed-rate debt and as a result lower the amount of floating-rate debt when faced with elevated levels of EPU. On the other hand, we find that when facing high EPU, firms with positive cash flow IR sensitivity only reduce their usage of swapping to floating-rate debt while firms with high bond debt adopt alternative strategies other than IR swaps to reduce their floating-rate debt. Furthermore, we find that EPU has no significant impact on financially unconstrained firms’ IR swap usage and floating-rate debt.

Against the backdrop of uncertain times we assess the out-of-sample forecasting performance of UK GDP growth, CPI inflation, unemployment rate and the policy interest rate of the Bank of England (BoE). A large time-varying Bayesian model with domestic variables (such as economic policy uncertainty, Divisia M4 growth, and financial stress) and international variables (such as geopolitical risk, the US interest rate, and US financial stress) is ranked first for CPI inflation, followed by the BoE's forecasts in second place. The large Bayesian model is ranked first for GDP growth at the four-step-ahead forecast horizon and remains inferior only to the BoE’s forecasts at shorter forecast horizons. Smaller versions of the Bayesian model provide superior unemployment rate forecasts and predict, together with market expectations of interest rates, the policy interest rate better than competing models. An Augmented AutoRegressive (AR) model of global supply chain pressures, pandemic effects, and trade uncertainty offers significant forecasting power for UK inflation and very short-term GDP growth. The Augmented AR model makes no assumptions about the future path of the policy interest rate. This might be an attractive and alternative option to the BoE's forecasting analysis which currently relies on market expectations of interest rates.