Economic Policy Uncertainty and Pandemic Uncertainty impacts on Tunisian sectors stock returns: evidence from VAR-DCC-GARCH model

Abstract To examine the effects of economic policy uncertainty (EPU) and pandemic uncertainty (PU) on Tunisian sectorial stock market returns, our paper contributes to the financial literature by providing a new study based on VAR-DCC-GARCH. This study uses the EPU and pandemic uncertainty indices and daily of eight Tunisian sector indices namely Automobile and Parts (AP), Banks, Basic Materials (BM), Building Construct Materials (BCM), Financials (FIN), Industrials (IND), Insurance (INS) and Food and Beverage (FB). The symmetric VAR-DCC-GJR-GARCH and VAR-DCC-EGARCH are the appropriate model for the empirical study. Results show a mixed sign of time varying correlation of sectors returns with EPU with respectively high and low significant long run and short run persistence of shocks. Evidence suggests that PU starts with a tranquil correlation and then becomes negative indicating the negative effect on sectors returns. In the last half of 2021, Tunisian investors succeed to overcome their fear and less risk averse.Jel codes : C32 ; D53 ; D74 ; G38 ; H12.