This paper aims to empirically examine the relationship between EPU and asset prices, with a specific focus on exploring the existence of a negative (or positive) risk premium associated with this factor. We find that firms with lower EPU beta, indicating a lower correlation to economic policy uncertainty, exhibit, on average, higher excess returns compared to their counterparts with higher exposure to EPU. Moreover, we find that a portfolio long on stocks that have low EPU Beta and short on stocks with high IIE beta, generate risk-adjusted return of 0.85% per month or almost 10.7% per year, controlling for market, size, book-to-market and momentum. We also find negative and significant alphas for the equal and value-weighted portfolios and a positive and significant risk premium.
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