Uncertainty Shocks and Sectoral Stock Returns: Evidence from Sweden : An Empirical Analysis of U.S. Market and Policy Uncertainty Spillovers

Sammanfattning

Our thesis examines how U.S.-based market and economic policy uncertainty affects sector-level stock returns in the Swedish stock market. Despite extensive research on uncertainty and financial markets, limited attention has been paid to how U.S.-based uncertainty affects sector-level returns in foreign economies. Our study focuses on Sweden, a small open economy with large exposure to international financial markets and global economic conditions. Two uncertainty measures are used: the VIX index, which represents U.S. market-based uncertainty, and the U.S. Economic Policy Uncertainty Index, which represents policy-based uncertainty.The empirical analysis is based on daily data from 2006 to 2026 and examines four Swedish sectors: Industrials, Materials, Healthcare, and Telecommunications. The study applies regression-based methods using log changes in VIX and EPU, including lagged values to capture short-term dynamics. Newey-West standard errors are used to account for heteroskedasticity and autocorrelation. The analysis also includes interaction models to test sectoral differences, joint VIX and EPU specifications, and local projections to examine dynamic responses. We find that market-based uncertainty, measured by changes in the VIX, has a clear and statistically significant negative relationship with Swedish sector returns, particularly in the contemporaneous period and at the first lag. This relationship is strongest for Industrials, Healthcare, and Telecommunications, while Materials shows weaker responses. In contrast, policy-related uncertainty, measured by EPU, shows limited and inconsistent relationships with sector returns. In the joint model, VIX remains the dominant uncertainty measure, while EPU does not add meaningful explanatory power. The results suggest that Swedish sector returns are more strongly associated with short-term financial market uncertainty than with daily changes in policy uncertainty. The findings contribute to the literature by providing sector-level evidence from a small open economy and by comparing market- and policy-based uncertainty within a single empirical framework.