This paper analyzes how changes in government policy affect stock prices, focusing on the role of uncertainty about government policy. The authors develop a general equilibrium model where the government has both economic and non-economic motives for changing policies, and where uncertainty about the impact of these policies on firm profitability exists. The government tends to change policies after periods of private sector downturns. Stock prices typically fall at the announcement of policy changes, with the magnitude of the fall influenced by the level of policy and political uncertainty. Policy changes increase volatility, risk premia, and correlations among stocks. The expected jump risk premium associated with policy decisions is positive, on average. The paper also examines the effects of policy changes on stock prices in different scenarios, including endogenous timing of policy changes, firms' disinvestment responses, and heterogeneity in firms' exposures to government policy. The findings suggest that the government's ability to change policies amplifies stock price declines around policy changes.This paper analyzes how changes in government policy affect stock prices, focusing on the role of uncertainty about government policy. The authors develop a general equilibrium model where the government has both economic and non-economic motives for changing policies, and where uncertainty about the impact of these policies on firm profitability exists. The government tends to change policies after periods of private sector downturns. Stock prices typically fall at the announcement of policy changes, with the magnitude of the fall influenced by the level of policy and political uncertainty. Policy changes increase volatility, risk premia, and correlations among stocks. The expected jump risk premium associated with policy decisions is positive, on average. The paper also examines the effects of policy changes on stock prices in different scenarios, including endogenous timing of policy changes, firms' disinvestment responses, and heterogeneity in firms' exposures to government policy. The findings suggest that the government's ability to change policies amplifies stock price declines around policy changes.