Economic Policy Uncertainty and Stock Market Dynamics in India: Evidence from a Non-linear Framework
Year: 2026
Type: article
Abstract: The study examines the asymmetric relationship between economic policy uncertainty (EPU) and the Indian stock market in the presence of a structural break that is induced by the COVID-19 pandemic. The study employed the non-linear autoregressive distributed lag (NARDL) model to examine the asymmetric impact of EPU on the Indian stock market using monthly data from 2003M01 to 2025M01. The study also employed the Chow breakpoint test to detect structural breakdowns caused by the COVID-19 pandemic. The study also used the BDS test to assess the non-linearity of the variables and the Wald test to examine long and short-run asymmetry. The study reveals a significant asymmetric relationship between EPU and the Indian stock market. The results reveal significant short-run and long-run asymmetries in the relationship between EPU and stock market performance, indicating that the market responds differently to positive and negative uncertainty shocks. The rising EPU negatively impacts stock prices, while the declining EPU has a more substantial positive effect in the long run. On the other hand, in the short run, rising EPU has a significantly negative contemporaneous effect on stock prices, whereas falling EPU has no contemporaneous impact. Furthermore, the COVID-19 structural break significantly affected the stock market only in the short run, with little long-term impact.
Authors: Abdul Moizz, S. M. Jawed Akhtar
Institution: Aligarh Muslim University
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W7165906140