Economic policy uncertainty, risk and stock returns: Evidence from G7 stock markets

•This paper examines uncertainties and risks on excess stock returns G7 markets using monthly observations.•The estimated results find evidence supporting positive risk-return relation not only for risk as measured by conditional volatility but also for downside risk.•The stock returns are negatively correlated with economic policy uncertainty innovation (ΔEPU) in both local and global sources.•In addition to the negative effect of ΔEPU on excess stock returns, evidence also demonstrates that lagged ΔEPU positively contributes to a rise in stock return volatility.•The conventional test of risk-return relation without controlling ΔEPU is subject to a specification bias.