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Cover -- Economic Policy Uncertainty in Turkey -- I. INTRODUCTION -- II. RELATED LITERATURE AND CONTRIBUTION TO THE LITERATURE -- III. MEASURING ECONOMIC POLICY UNCERTAINTY -- IV. OTHER DATA -- V. EMPIRICAL FRAMEWORK -- VI. RESULTS -- VII. ROBUSTNESS CHECKS -- VIII. CONCLUSION -- REFERENCES -- APPENDIX -- Economic Policy Uncertainty Search Algorithms -- Robustness Checks -- Figure -- Figure 1: Turkey's Economic Policy Uncertainty Index -- Figure 2: Turkey's Economic Policy Uncertainty Index: Choice of Normalizers -- Figure 3: Turkey's Annualized Economic Policy Uncertainty Index -- Figure 4: Turkey's Quarterly Economic Policy Uncertainty Index -- Figure 5: Key Variables Used in the Analysis -- Figure 6: Investment Irreversibility by Sector -- Table -- Table 1: Economic Policy Uncertainty on Investment -- Table 2: Economic Policy Uncertainty on Employment -- Table 3: Economic Policy Uncertainty on Net Borrowing -- Table A.1: Effects of Policy Uncertainty in Other Quarters of the Previous Year -- Table A.2: Effects of Policy Uncertainty in Other Quarters of the Previous Year -- Table A.3: Alternative Treatment Intensity Variables -- Table A.4: DID Regressions with Time Dummies -- Table A.5: DID Regressions Excluding Some Sectors -- Table A.6: DID Regressions Using the Annualized EPU Index as A Regressor

AbstractForecasting the economic policy uncertainty in Europe is of paramount importance given the ongoing sovereign debt crisis. This paper evaluates monthly economic policy uncertainty index forecasts and examines whether ultra‐high frequency information from asset market volatilities and global economic uncertainty can improve the forecasts relatively to the no‐change forecast. The results show that the global economic policy uncertainty provides the highest predictive gains, followed by the European and US stock market realized volatilities. In addition, the European stock market implied volatility index is shown to be an important predictor of the economic policy uncertainty.

We study the trading behavior of short sellers in the presence of economic policy uncertainty (EPU). Daily short selling activity at either the aggregate level or the individual stock level is increasing in the EPU index (Baker, Bloom and Davis, 2016). EPU has great explanatory power for short trading. Cross-sectional tests show that the increase in short interest under high political uncertainty is from shorting stocks characterized by higher mispricing, greater policy sensitivity, higher illiquidity, greater volatility or analyst dispersion. Short sellers earn abnormal profits by trading on public information related to EPU.