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Time-frequency transmission mechanism of EPU, investor sentiment and financial assets: A multiscale TVP-VAR connectedness analysis

Xingzhi Qiao, Huiming Zhu, Zhongqingyang Zhang and Weifang Mao

The North American Journal of Economics and Finance, 2022, vol. 63, issue C

Abstract: This article examines the transmission mechanism of economic policy uncertainty (EPU), investor sentiment and Chinese financial assets from time-frequency and static-dynamic perspectives. The multiscale connectedness method based on time-varying parameter vector autoregression (TVP-VAR) is introduced to explore the time–frequency and static-dynamic spillovers. The empirical results are as follows: First, there is an interdependence between EPU and high-risk assets. Additionally, EPU and high-risk assets spillover risk to investor sentiment individually or in chains, ultimately affecting low-risk assets. Second, high-risk assets spill to low-risk assets in the short term but reverse in the long term. Third, EPU spills over to the system the most around 2008, especially in the long term. In addition, high-risk assets are the largest risk spillover and recipient at each frequency over the last decade. Overall, investors and regulators should consider real-time financial monitoring solutions in China based on economic policy uncertainty and investor sentiment factors.

Keywords: Transmission mechanism; Chinese financial market; Economic policy uncertainty; Investor sentiment; Wavelet; TVP-VAR connectedness (search for similar items in EconPapers)
JEL-codes: C32 D80 G40 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:63:y:2022:i:c:s1062940822001784

DOI: 10.1016/j.najef.2022.101843

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