The Impacts of Policy Uncertainty on Asset Prices: Evidence from China’s Market

Yunpeng Su (), Jia Li (), Baochen Yang () and Yunbi An ()
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Yunpeng Su: Tianjin University
Jia Li: Tianjin University
Baochen Yang: Tianjin University
Yunbi An: University of Windsor

Asia-Pacific Financial Markets, 2024, vol. 31, issue 4, No 12, 1087-1133

Abstract: Abstract We employ the "Two Sessions," comprising the National People’s Congress and the Chinese People’s Political Consultative Conference, as a proxy for measuring policy uncertainty. In our analysis, we utilize a regression model, the three-path mediated effect framework, and the Campbell and Shiller decomposition method to delve into the influence of policy uncertainty on asset pricing within China’s financial market. Our findings reveal an increase in stock returns during the months leading up to the "Two Sessions," evident at both the market and firm levels. Notably, the extent to which stock returns respond to policy uncertainty is contingent on various firm-specific characteristics, including ownership structure, company size, and profitability. Furthermore, our investigation confirms that investor sentiment serves as a complete mediator in the relationship between policy uncertainty and its impact on asset prices. Additionally, we identify future cash flow as the primary conduit through which policy uncertainty directly exerts its influence on asset prices.

Keywords: The “Two Sessions”; Policy uncertainty; Chinese stock returns (search for similar items in EconPapers)
JEL-codes: G12 G14 G18 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10690-023-09442-7

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