Government policy uncertainty and stock prices: The case of Australia's uranium industry

- Government policy uncertainty has direct effects on stock prices of uranium explorers.
- Stock returns are positively related to the spread in two-party-preferred voting intention.
- Stock volatility is positively related to a uranium news-based sentiment index.
- Event-study results show significant market reaction to key uranium policy events.

We investigate effects of government policy uncertainty on stock prices, reflecting tension between 'private interest' (economic benefits) and 'public interest' arguments over uranium mining. Using a sample of Australian-listed uranium firms from January 2005 through June 2008, we document a positive contemporaneous correlation between stock returns and volatility and two measures of government policy uncertainty, proxied by the spread in voters' opinion polls between the two major political parties and a news-based sentiment index. Event-study results show significant stock price reactions to key uranium-related policy events, with cross-sectional variation in event returns predicted by models incorporating firm- and project-level characteristics. Our research design and findings may inform future research on the capital market effects of government policy uncertainty in other regulated industries.