A New Way of Measuring Policy Uncertainty: The Volatility Smile-Based Uncertainty (VSU) Index
(3 min read)
Policy uncertainty is everywhere. Trump’s trade policy, Brexit, and the rise of populism. All have played a significant part in its rise. The challenge for investors is how to measure this type of uncertainty. One popular approach has been to track media coverage deploying key phrases such as ‘economic uncertainty’. The Economic Policy Uncertainty (EPU) index uses this approach. It covers a range of countries including several developing economies and is freely available. Generally speaking, the EPU is correlated with equity volatility and the business cycle as one would expect.
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