The macro and asset pricing implications of rising Italian uncertainty: Evidence from a novel news-based macroeconomic policy uncertainty index

We develop a new monthly and daily index of economic policy uncertainty for Italy based on articles from the Sole 24 Ore (a popular Italian business daily newspaper). VAR investigations document that an unexpected rise in the Sole 24 Ore news-based EPU index (EPU24) has mild effects on the real economic activity. Cross-sectional asset pricing tests then show that both monthly and daily EPU24 shocks command a positive risk premium. A standard event study finally indicates the presence of statistically significant positive cumulative abnormal returns (CARs) in the energy sector following different categories of policy-related events. Negative and significant CARs in the financial sector are instead found to be generated by international-related events and political elections. •We build a new EPU index for Italy based on articles from the Sole24Ore (EPU24).•EPU24 shocks have mild effects on the Italian real economic activity.•EPU24 shocks command a positive risk premium.•Policy-related events generate positive CARs in the energy sector.•Political elections and international events generate negative CARs in the financial sector