Policy uncertainty and idiosyncratic volatility on Nikkei 225 stocks

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