The Effects of Economic Uncertainty and Trade Policy Uncertainty on Industry-Specific Stock Markets Equity

Ijaz Younis (), Himani Gupta (), Waheed Ullah Shah (), Arshian Sharif () and Xuan Tang ()
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Ijaz Younis: Guangzhou University
Himani Gupta: Jagannath International Management School
Waheed Ullah Shah: Shandong Normal University
Xuan Tang: Guangzhou University

Computational Economics, 2024, vol. 64, issue 5, No 13, 2909-2933

Abstract: Abstract We use a wavelet based quantile-on-quantiles technique to explore the impact of economic policy uncertainty (EPU) and trade policy uncertainty (TPU) on the Chinese sector's markets. EPU, TPU and Chinese sector stocks monthly data from 2006 to 2022 were obtained from the data stream and separated into short, medium, and long-term datasets. First, the EPU indicates that the equity market for banks is significantly high and more positive, while the equity markets for construction, health care, finance, personal goods, and pharmaceuticals are lower and more consistent. The impact of EPUs on the Chinese sector quantiles is negative and volatile for the stock market in general. Short-term EPUs cause short-term losses in stock market returns in such sectors, but they are useful in redesigning new policies for economic development. In contrast, the long term effect of EPU on Chinese sector quantiles is positive for banks, health care, financial, personal goods, and pharma, but negative and volatile for the construction stock market return. The EPUL has the best long state policies to achieve stable economic development. Second, the TPU’s impact on Chinese sector quantiles is positive for banks but negative for all other sectors’ stock markets. The impact of TPUL on Chinese sector quantiles is negative for banks, construction, and health care but positive for financial, personal goods, and pharma stock markets. In the long run, the state will indeed increase trade, investment, production, and growth. The robustness test also confirms causality at variance and mean values. Finally, the government, stakeholders, and investors can benefit from these insights.

Keywords: EPU; TPU; Chinese sectoral markets; Wavelet; Quantile on quantile (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10614-024-10552-1

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