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Economic policy uncertainty and the Chinese stock market volatility: Novel evidence

Tao Li, Feng Ma, Xuehua Zhang and Yaojie Zhang

Economic Modelling, 2020, vol. 87, issue C, 24-33

Abstract: In this study, we investigate the impact of global economic policy uncertainty (GEPU) on Chinese stock market volatility. More importantly, for the first time, we explore the effects of directional GEPU based on the changing directions of GEPU and Chinese economic policy uncertainty (EPU). We make several noteworthy findings. First, the in-sample estimated results show that up and down GEPU can lead to substantially high stock market volatility for China. Second, the out-of-sample estimated results support the contention that the GEPU index is helpful for predicting volatility. Moreover, compared to GEPU alone, directional GEPU can provide more useful information that can increase the forecast accuracy. Third, we empirically find that directional GEPU is more effective in predicting Chinese stock market volatility when GEPU and EPU rise in the same month.

Keywords: Volatility forecasting; EPU; GEPU; Out-of-sample (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.econmod.2019.07.002

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