Do Stock Market Return and Volatility Respond to U.S. Partisan Conflict Uncertainty?

ABSTRACT

The ability of the U.S. partisan conflict index to predict the U.S. stock market's return and volatility is checked in this paper. For this purpose, we have adopted quantile Granger Causality tests. The findings show that there is no linear causal link between the partisan conflict index and stock market returns and volatility. However, it is noted that there is robust linear causality between the lower and upper quantiles. Also, through Conditional Autoregressive Value at Risk (CAViaR) models, it is proven that non‐linear causality is also present between the partisan conflict index and stock market return and volatility, especially in the lower as well as upper quantiles. It is advised that policymakers consider employing recommended models for assessing the non‐linear pattern between economic indicators and stock market dynamics.