Chinese Economic Policy Uncertainty and the Cross-Section of U.S. Asset Returns

Kiryoung Lee, Yoontae Jeon and Eun-Young Nam

International Review of Economics & Finance, 2021, vol. 76, issue C, 1063-1077

Abstract: We find that Chinese EPU shocks can explain 40% of the cross-sectional variation in bond returns. We also find that Chinese EPU shocks command a significant negative risk premia. In contrast to a strong explanatory power for bond markets, we do not find meaningful pricing power of Chinese EPU for equity markets. We argue and provide supporting empirical evidence that this result is attributable to the fact that Chinese EPU has a strong influence on the U.S. economy mainly during recessions. Overall, our findings suggest that a foreign EPU shock could be a potentially important factor in explaining bond returns.

Keywords: Chinese economic policy uncertainty; Cross-section of bond returns; Global economy; VIX; ICAPM (search for similar items in EconPapers)
JEL-codes: G12 G13 G15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:76:y:2021:i:c:p:1063-1077

DOI: 10.1016/j.iref.2021.08.011

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