An Analytical Study of Stock Market Flows Based on the Premise of Policy Uncertainty

Zhenna Huang () and Zhihui Yang
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Zhenna Huang: Guangzhou College of Technology and Business
Zhihui Yang: Guangzhou College of Technology and Business

A chapter in Proceedings of the 3rd International Conference on Economic Development and Business Culture (ICEDBC 2023), 2024, pp 537-541 from Springer

Abstract: Abstract In the case of China, the process of global financial integration is gradually accelerating, and with the opening of trading channels such as the Shanghai-London Stock Connect and the Shanghai-Hong Kong Stock Connect, China is facing more significant cross-border financial risk shocks. Therefore, an in-depth study of the cross-country dynamic transmission of stock market risks in conjunction with EPU is not only conducive to better prevention of risk resonance caused by cross-country transmission, but also conducive to the correct and reasonable evaluation of economic policy uncertainties and the position of national (regional) stock markets in the risk transmission network, as well as to the establishment of an early warning system for offshore risks in China, the consolidation of financial security defences and the resolution of shocks caused by offshore risks. It also provides new ideas for China to establish an early warning system for offshore risks, consolidate its financial security defences, and address shocks arising from imported risks. Therefore, this paper examines the relationship between economic policy uncertainty and cross-border cross-market contagion of risk in equity markets in a selection of 18 major countries (regions) around the world. On the one hand, based on a non-linear network model, the sample is divided into different periods to analyse the spillover effect between EPU and stock market separately and compare it with the traditional linear Granger causality test; on the other hand, based on a PVAR model, the spillover effect between stock market and economic policy uncertainty in G7 and BRICS countries in different periods is further explored. The result is effective recommendations for market participants as well as the government.

Keywords: Financialization; Stock markets; Risk warning; Cross-border markets (search for similar items in EconPapers)
Date: 2024
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DOI: 10.2991/978-94-6463-246-0_65

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