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Economic policy uncertainty, COVID-19 lockdown, and firm-level volatility: Evidence from China

Jianlei Yang and Chunpeng Yang

Pacific-Basin Finance Journal, 2021, vol. 68, issue C

Abstract: To explain how firm-level volatility responds to the COVID-19 pandemic shock through the economic policy uncertainty (EPU) channel, we examine the two-dimension variations of stock volatility under the impact of COVID-19 pandemic and two types of EPU: measured by comprehensive newspapers news and financial newspapers news. The results, based on a difference in difference (DID) estimation, suggest a significant additional increase in the volatility of stocks with a higher degree of sensitivity to EPU after the announcement of the COVID-19 pandemic lockdown. Moreover, this effect is most pronounced for consumer, less-profitable, and high leverage stocks. Further multi-period analyses indicate that the impact of EPU associated with pandemic takes effect at the time of lockdown announcement and persist for a short-term trend.

Keywords: Economic policy uncertainty; Firm-level volatility; COVID-19 pandemic; Difference in difference estimation (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.pacfin.2021.101597

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