Impact of Economic Policy Uncertainty Shocks on China’s Stock Market Development: Evidence from Nonlinear Autoregressive Distributed Lag and Spectral Causality Approaches

Assad Ullah, Xinshun Zhao, Chenghui Ye and Muhammad Abdul Kamal

SAGE Open, 2024, vol. 14, issue 3, 21582440241266026

Abstract: Stock markets augment industries by raising and circulating capital in the economic system. This article examines the relationship between economic policy uncertainty (EPU) shocks and stock market development (SMD) in China. To this end, we utilize a novel EPU index the Nonlinear Autoregressive Distributed Lag (NARDL), and the Breitung-Candelon spectral causality approaches. The empirical outcomes suggest that positive (negative) shocks of EPU significantly decrease (increase) China’s SMD. The spectral causality approach confirms the lead-lag relationships among EPU shocks, stock market liquidity, banking sector development, savings, and trade openness. To propel the size of China’s stock market, the concerned authorities should strive to appease high EPU and ensure stability in macroeconomic and financial dynamics. JEL Classification: G11, G12, G15.

Keywords: economic policy uncertainty; stock market development; asymmetric ARDL; spectral causality; China (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:sae:sagope:v:14:y:2024:i:3:p:21582440241266026

DOI: 10.1177/21582440241266026

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