Wang, YizhiZhang, JingzeZhu, Qiaoqiao2025-05-232025-05-230270-2592http://www.scopus.com/inward/record.url?scp=85219546201&partnerID=8YFLogxKhttps://hdl.handle.net/1885/733752150In this paper, we investigate the role of economic policy uncertainty (EPU) in the cost of equity capital. Our findings suggest that the relationship between EPU and the security market line (SML) varies cross-sectionally. Following periods of high EPU, the SML tends to slope upward, whereas it exhibits a downward slope following periods of low EPU. In the time-series analysis, we observe that EPU significantly and positively affects the beta premium. Further evidence shows that investors may adjust their portfolios, shifting investments from higher-risk assets to lower-risk assets when confronted with high EPU.We would like to thank the Editor (Adam Yore), an anonymous Associate Editor, and an anonymous Reviewer for their helpful comments and suggestions, which have greatly improved the quality of our paper. Yizhi Wang acknowledges the financial support from the Natural Science Foundation of Shandong Province (Grant Number ZR2021QG069) and the International Cooperative Project of Shandong University of Finance and Economics. Any remaining errors are our own. The authors declare that they have no conflicts of interest.enPublisher Copyright: © 2025 The Southern Finance Association and the Southwestern Finance Association.202510.1111/jfir.1246085219546201