The dynamic correlation between policy uncertainty and stock market returns in China

Miao Yang and Zhi-Qiang Jiang

Physica A: Statistical Mechanics and its Applications, 2016, vol. 461, issue C, 92-100

Abstract: The dynamic correlation is examined between government’s policy uncertainty and Chinese stock market returns in the period from January 1995 to December 2014. We find that the stock market is significantly correlated to policy uncertainty based on the results of the Vector Auto Regression (VAR) and Structural Vector Auto Regression (SVAR) models. In contrast, the results of the Dynamic Conditional Correlation Generalized Multivariate Autoregressive Conditional Heteroscedasticity (DCC-MGARCH) model surprisingly show a low dynamic correlation coefficient between policy uncertainty and market returns, suggesting that the fluctuations of each variable are greatly influenced by their values in the preceding period. Our analysis highlights the understanding of the dynamical relationship between stock market and fiscal and monetary policy.

Keywords: Policy uncertainty; Stock market returns; DCC-MGARCH (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:461:y:2016:i:c:p:92-100

DOI: 10.1016/j.physa.2016.05.019

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