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Swedish Banks’ Exposure to Economic Policy Uncertainty: a GARCH Approach

Danielsson, Max LU and Berisha, Drilon LU (2025) NEKP01 20251
Department of Economics
Abstract
This study investigates how EPU affects stock returns and volatility for Sweden’s four largest banks: Swedbank, Skandinaviska Enskilda Banken, Svenska Handelsbanken, and Nordea. As a small open economy with a concentrated and globally exposed banking sector, Sweden is particularly vulnerable to both domestic and international uncertainty shocks. Using monthly data from 2000 to 2024, we apply a GARCH (1,1) model with exogenous variables to assess the effects of Swedish and global EPU indices on bank-specific return dynamics. The study contributes to the literature by focusing on bank-level effects in a small economy and by distinguishing between domestic and global sources of policy uncertainty. We find that global EPU significantly reduces... (More)
This study investigates how EPU affects stock returns and volatility for Sweden’s four largest banks: Swedbank, Skandinaviska Enskilda Banken, Svenska Handelsbanken, and Nordea. As a small open economy with a concentrated and globally exposed banking sector, Sweden is particularly vulnerable to both domestic and international uncertainty shocks. Using monthly data from 2000 to 2024, we apply a GARCH (1,1) model with exogenous variables to assess the effects of Swedish and global EPU indices on bank-specific return dynamics. The study contributes to the literature by focusing on bank-level effects in a small economy and by distinguishing between domestic and global sources of policy uncertainty. We find that global EPU significantly reduces stock returns, especially for internationally oriented banks, while Swedish EPU more strongly influences conditional volatility, particularly among domestically focused institutions. These results highlight the importance of accounting for differentiated policy exposure when assessing financial sector risks. (Less)
Please use this url to cite or link to this publication:
author
Danielsson, Max LU and Berisha, Drilon LU
supervisor
organization
course
NEKP01 20251
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Economic Policy Uncertainty, GARCH, Volatility, Stock Returns, The Swedish Banking Sector, Financial Stability
language
English
id
9200079
date added to LUP
2025-09-12 10:50:44
date last changed
2025-09-12 10:50:44
@misc{9200079,
  abstract     = {{This study investigates how EPU affects stock returns and volatility for Sweden’s four largest banks: Swedbank, Skandinaviska Enskilda Banken, Svenska Handelsbanken, and Nordea. As a small open economy with a concentrated and globally exposed banking sector, Sweden is particularly vulnerable to both domestic and international uncertainty shocks. Using monthly data from 2000 to 2024, we apply a GARCH (1,1) model with exogenous variables to assess the effects of Swedish and global EPU indices on bank-specific return dynamics. The study contributes to the literature by focusing on bank-level effects in a small economy and by distinguishing between domestic and global sources of policy uncertainty. We find that global EPU significantly reduces stock returns, especially for internationally oriented banks, while Swedish EPU more strongly influences conditional volatility, particularly among domestically focused institutions. These results highlight the importance of accounting for differentiated policy exposure when assessing financial sector risks.}},
  author       = {{Danielsson, Max and Berisha, Drilon}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Swedish Banks’ Exposure to Economic Policy Uncertainty: a GARCH Approach}},
  year         = {{2025}},
}