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Empirical investigation of changes in policy uncertainty on stock returns—Evidence from China’s market

Xiaoyu Chen and Thomas C. Chiang

Research in International Business and Finance, 2020, vol. 53, issue C

Abstract: This study finds evidence that a rise in economic policy uncertainty (EPU) leads to a decline in stock returns in Chinese market; however, a positive coefficient was observed in the lagged EPU as stock prices rebound. This phenomenon also holds true for a rise in uncertainty innovations in fiscal policy, monetary policy, trade policy and global policy. The evidence leads to conclude that policy uncertainty premiums should be priced into China’s stock prices. An escalation of U.S. policy uncertainty has a significantly harmful effect on Chinese stocks regardless of whether firms are stated own or listed on U.S. market.

Keywords: Economic policy uncertainty; Downside risk; GARCH model; Risk-return relation; Uncertainty premium; Chinese stock market (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.ribaf.2020.101183

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