Economic policy uncertainty, investor sentiment and financial stability—an empirical study based on the time varying parameter-vector autoregression model

Xin-Zhou Qi (), Zhong Ning and Meng Qin
Additional contact information
Xin-Zhou Qi: Fudan University
Zhong Ning: Fudan University
Meng Qin: Party School of the Central Committee of the Communist Party of China

Journal of Economic Interaction and Coordination, 2022, vol. 17, issue 3, No 4, 779-799

Abstract: Abstract This paper applies the time varying parameter-vector autoregression model to explore the dynamic relationship between economic policy uncertainty, investor sentiment and financial stability in China in different periods and at different time points. The empirical results show that economic policy uncertainty has an obvious negative impact on investor sentiment before 2012 and financial stability in the short term, and the influence of economic policy uncertainty on investor sentiment is greater than that of economic policy uncertainty on financial stability. These influences were more significant during the period of the global financial crisis in 2008. Moreover, investor sentiment had a positive and gradually increasing effect on financial stability, while after 2010, the positive impact gradually weakened. Furthermore, economic policy uncertainty is negatively affected by financial stability, and the effect of financial stability on investor sentiment is positive. In terms of mediating effects, economic policy uncertainty has an indirect impact on financial stability through investor sentiment and vice versa. This paper provides a new solution to economic problems explored in behavioral finance research. Additionally, Chinese government agencies can achieve the goal of preventing financial crises and maintaining financial stability by monitoring investor sentiment and implementing targeted economic policies.

Keywords: Economic policy uncertainty; Investor sentiment; Financial stability; Time varying parameter-vector autoregression model (search for similar items in EconPapers)
JEL-codes: E60 G18 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://link.springer.com/10.1007/s11403-021-00342-5 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:jeicoo:v:17:y:2022:i:3:d:10.1007_s11403-021-00342-5

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/11403/PS2

DOI: 10.1007/s11403-021-00342-5

Access Statistics for this article

Journal of Economic Interaction and Coordination is currently edited by A. Namatame, Thomas Lux and Shu-Heng Chen

More articles in Journal of Economic Interaction and Coordination from Springer, Society for Economic Science with Heterogeneous Interacting Agents Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().