The Impact of EPU on Firm-Level Stock Return Volatility: Evidence from U.S. Firms

Abstract

This paper analyzes the link between economic policy uncertainty (EPU) and firm- level stock return volatility in the U.S. equity market. The sample contains 60 publicly listed U.S. firms observed annually from 2010 to 2025. Firm volatility is measured from daily stock returns and then annualized, while annual EPU is calculated from monthly EPU index values. The regression analysis applies firm fixed-effects models and uses standard errors clustered by firm. The raw data show that years with higher EPU are generally matched with higher average firm-level volatility. After controlling for firm characteristics and market return, the baseline model does not show a statistically significant direct EPU coefficient. Leverage remains positively related to volatility across the specifications, and market return remains negatively related to volatility. The leverage interaction model shows that the EPU-volatility relationship changes with firm leverage. The evidence suggests that firm-level stock volatility is linked to policy uncertainty, financial structure, and market conditions.