Policy Uncertainty and Idiosyncratic Volatility on Nikkei 225 Stocks

The main purpose of this study is to empirically examine the relationship between uncertainty and idiosyncratic volatility of Nikkei 225 stocks. We conclude that there is a positive relationship between economic policy uncertainty and idiosyncratic volatility. Employing additional uncertainty measures such as monetary, fiscal, trade, and exchange rate policy, we find similar positive relationships between these policy uncertainty measures and idiosyncratic volatility except for exchange rate policy. Industry analysis reveals much detailed information about how each Japanese industry responds to uncertainty, and its conflicting results emphasize the critical roles of government officers and policymakers in the stock markets