When is the stock market at risk? The devil is in the (de)tails

Over the past two decades, recurring financial shocks have amplified uncertainty among economic agents. This dissertation examines the impact of the U.S. Economic Policy Uncertainty index (EPU), developed by Baker, Bloom, and Davis (2016), on equity markets. Using quantile regression on daily S&P 500 returns and on daily equity indices for eight international markets (Brazil, Canada, Mexico, the United Kingdom, Germany, Japan, China and Australia), the analysis uncovers a pronounced, nonlinear, tail-dependent transmission of U.S. policy uncertainty. Elevated EPU generally depresses returns, but the magnitude and sign of the effect vary across countries and across the return distribution: Germany for example, exhibit strong downside responses, whereas China uniquely shows relative gains during episodes of higher U.S. policy uncertainty. Furthermore, the temporal persistence of these nonlinearities is evaluated by applying local projections to the quantile-regression β at the 5th percentile; several markets display substantial and long-lived adverse effects, while others revert more rapidly. The findings demonstrate that uncertainty propagation is asymmetric and quantile-specific, suggesting that policymakers and investors should prioritize distributional (tail) dynamics, not just conditional means, when assessing systemic risk and designing interventions.