Unveiling the Relationship between Economic Policy Uncertainty and Stock Market Volatility--A Comparative Study of Overnight and Intraday Trading Sessions in China

Haobo Lin (), Yuchi Lu () and Sixian Chen ()
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Haobo Lin: Beijing JiaoTong University, School of Economics and Management
Yuchi Lu: Beijing JiaoTong University, School of Economics and Management
Sixian Chen: Beijing JiaoTong University, School of Economics and Management

A chapter in Proceedings of the 2024 4th International Conference on Enterprise Management and Economic Development (ICEMED 2024), 2024, pp 69-76 from Springer

Abstract: Abstract With China’s economic evolution entering a new phase, the influence of economic policy uncertainty on the informational dynamics of financial markets has become increasingly pronounced. Although most research focuses on the effects of economic policy uncertainty on macroeconomics and corporate behavior, there has been little investigation into its impact on stock markets. Nevertheless, the correlation between economic policy uncertainty and stock market volatility is strong and has a significant impact on investors’ decision-making processes. However, the correlation between economic policy uncertainty and stock market volatility is strong, significantly impacting investors’ decision-making processes. Quantile regression offers distinct advantages over traditional techniques, particularly in detecting asymmetries in variable relationships. While most scholarly endeavors concentrate on assessing the impact of economic policy uncertainty (EPU) on daily fluctuations, policy shifts in foreign countries and global events can swiftly permeate domestic markets, consequently affecting overnight trading volatility. In light of these insights, this study disaggregates intraday volatility into overnight and intraday components. Investigating the influence of economic policy uncertainty (EPU) on overnight stock market volatility in China through quantile regression methods during intraday trading sessions reveals noteworthy insights. Specifically, EPU exhibits a positive association with overnight stock market volatility in the Chinese context, with its coefficient being statistically significant at the first quantile (0.05%), albeit insignificantly positive at other quantiles. Conversely, Economic Policy Uncertainty (EPU) exerts a statistically significant adverse impact on intraday stock market volatility, demonstrating a consistent negative correlation. These findings offer detailed insights into the impact of EPU on stock market volatility during different trading periods, shedding light on the intricate interplay between policy uncertainty and market behavior within the global arena.

Keywords: economic policy uncertainty; stock market volatility; overnight and intraday analysis (search for similar items in EconPapers)
Date: 2024
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DOI: 10.2991/978-94-6463-506-5_9

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