Regulatory uncertainty is a central channel through which policy affects financial decisions. Nicole Bäuerle, Nicole Branger, An Chen, Monika Gehde-Trapp, Antje Mahayni, Melanie Schienle and Caren Sureth-Sloane develop a programmatic conceptual framework for studying regulatory uncertainty in asset allocation and asset pricing. They define regulatory uncertainty as uncertainty about the design, timing, implementation, interpretation, and enforcement of regulations that directly shape cash flows, feasible actions, institutional constraints, and market expectations. This perspective distinguishes regulatory uncertainty from broader economic policy uncertainty by focusing on regulations, regulatory parameters, and enforcement practices rather than on policy uncertainty in general. The framework identifies four main entry points into financial models: cash-flow dynamics, beliefs and learning, regulatory constraints including tax constraints, and intermediary capital and liquidity constraints. It also clarifies when regulatory uncertainty is merely reflected in expected cash flows and when it commands a risk premium. The study illustrates the framework in selected domains in which regulatory uncertainty is economically important: financial regulation, climate policy, taxation, and insurance. It thereby provides a common language for connecting theoretical modeling, measurement, and empirical analysis of regulatory uncertainty and for deriving implications for investors, firms, intermediaries, and regulators.
Bäuerle, N., Branger, N., Chen, A., Gehde-Trapp, M., Mahayni, A., Schienle, M., Sureth-Sloane, C. Regulatory Uncertainty: Asset Allocation and Asset Pricing. Schmalenbach J Bus Res 78, 18 (2026). https://doi.org/10.1007/s41471-026-00257-6.