Template-Type: ReDIF-Paper 1.0 Author-Name: Julia Darby Author-Name-First: Julia Author-Name-Last: Darby Author-Email: julia.darby@strath.ac.uk Author-Workplace-Name: Department of Economics, University of Strathclyde Author-Name: Jun Gao Author-Name-First: Jun Author-Name-Last: Gao Author-Workplace-Name: Department of Economics, University College Cork, Ireland Author-Name: Siobhan Lucey Author-Name-First: Siobhan Author-Name-Last: Lucey Author-Workplace-Name: Department of Economics, University College Cork, Ireland Author-Name: Sheng Zhu Author-Name-First: Sheng Author-Name-Last: Zhu Author-Workplace-Name: Department of Economics and Centre for Investment Research, University College Cork, Ireland Title: Is heightened political uncertainty priced in stock returns? Evidence from the 2014 Scottish independence referendum Abstract: We contribute to a growing literature on economic and financial impacts of political uncertainty by assessing whether heightened uncertainty associated with an important political event is priced into stock returns. Our particular study looks at the period surrounding the 2014 Scottish Independence Referendum, although we argue that our approach and findings have wider relevance to assessing impacts of other political events, including Brexit. Using company data and portfolio-level analysis we document significant variation in returns and demonstrate that uncertainty betas help predict the cross-sectional dispersion of returns. These findings are robust to inclusion of controls (standard risk factors), but no longer hold when a Scottish specific uncertainty measure is replaced with UK-wide measures of either economic policy uncertainty or stock market uncertainty, adding support to the hypothesis that our findings are driven by referendum related uncertainty. We conclude that heightened political uncertainty was priced during the period surrounding the referendum, i.e. that uncertainty averse investors succeeded in gaining compensation for holding the volatile stocks of Scottish headquartered companies. Length: 30 pages Creation-Date: 2019-09 Revision-Date: Publication-Status: Published File-URL: https://www.strath.ac.uk/media/1newwebsite/departmentsubject/economics/research/researchdiscussionpapers/19-13_-_Julia_Darby_-_combined.pdf File-Format: Application/pdf Number: 1913 Classification-JEL: E65, G12, G18, P16 Keywords: Political uncertainty, stock market volatility Handle: RePEc:str:wpaper:1913