Does economic policy uncertainty affect stock market returns in Sweden?

Abstract: Earlier studies have shown that Economic Policy Uncertainty (EPU) in the US affects different macroeconomic and financial variables in the US and in various European countries, among them Sweden. The relationship between EPU in Sweden (a novel index) and the stock market in Sweden have not been studied. Using a Vector Autoregressive approach, I find that lags of stock market returns in Sweden Granger cause Swedish EPU. The direction of causality is the opposite of what was hypothesized.