The Impact Of Economic Policy Uncertainty On Stock Market Of China

Since the world financial crisis in 2008,the main governments have frequently adopted stipulative policies to intervene in economies and alleviate economic recession.Academic research on the economic policy uncertainty become more and more.China’s stock market set up late and the market system is not perfect,government always carries out a series of macro regulation polices to control economical working,it may bring violent fluctuations to the stock market.Therefore,it is important to study the impact of economic policy uncertainty on China’s stock market,especially when the world’s political and economic environment changes a lot in recent years.This paper constructs China’s economic policy uncertainty index based on the reports of mainstream news media in China,and use it to analyze the relationship between China’s stock market and economic policy uncertainty.Firstly,this paper reviews the relevant literature about economic policy uncertainty.Then the third part constructs China’s economic policy uncertainty index between January 2015 and June 2018,after referring to Baker’s method and considering national background and current economic policy of China,and compares it with Baker’s economic policy uncertainty index of China.In the fourth chapter,we study the effect of economic policy uncertainty on expected stock return based on Fama-French three-factor model and we find that economic policy uncertainty can weakly improve the expected return of stock market,and this positive effect is more obvious in the period of violent fluctuation market than in the period of stable market.Moreover,it has the most positive impact to banks and other financial sectors on the stock returns.In the fifth chapter,the paper establishes the ARMA-GARCH model to analyze the stock market heteroscedasticity,and finds that economic policy uncertainty will increase the expected volatility of the stock market,it is more obvious in the period of market volatility,but the impact of volatility is different to the stocks of different industries.For instance,economic policy uncertainty will reduce the expected volatility of transportation,public utilities,banking and other financial sectors.All in all,the relationship between economic policy uncertainty and stock market returns and volatility is significant.Economic policy uncertainty will improve the expected return of the stock market and increase the volatility of the stock market.In the sixth chapter,it draws a conclusion and points out the weakness and the field of research in the future.