Sector Volatility Spillover and Economic Policy Uncertainty: Evidence from China’s Stock Market

Xiaqing Su and Zhe Liu
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Xiaqing Su: School of Economics, Ocean University of China, Qingdao 266100, China
Zhe Liu: School of Economics, Ocean University of China, Qingdao 266100, China

Mathematics, 2021, vol. 9, issue 12, 1-22

Abstract: Following generalized variance decomposition, we identify the transmission structure of financial shock among ten sectors in China. Then, we examine whether economic policy uncertainty (EPU) affects it through GARCH-MIDAS regression. We find that consumer discretionary, industrials, and materials sectors are systemically important industries during the sample period. Further research of dynamic analysis shows that each sector acts in a time-varying role in this structure. The results of the GARCH-MIDAS regression indicate that none of the selected EPU indexes has a significant long-term impact on the total volatility spillover of the inter-sector stock market in China. However, the EPUs do affect some sectors’ spillover indexes in the long run, and they are significantly heterogeneous. This paper can provide regulatory suggestions for policymakers and reasonable asset allocation and risk avoidance methods for investors.

Keywords: financial risk; sector volatility spillover; dynamic structure; economic policy uncertainty; GARCH-MIDAS (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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