This paper empirically explores the short- and long-run effects of fiscal and monetary policies on US stock returns and tests the validity of market efficiency. The results support the presence of a strong long-run (equilibrium) relation binding stock prices with fiscal (but not monetary)...

This chapter examines changes in US monetary policy uncertainty (ΔMPU) and fiscal policy uncertainty (ΔFPU) on stock returns while controlling for downside risk, lagged dividend yield, and time series patterns. Testing G7 markets consistently shows that both ΔMPU and ΔFPU have significant...