Economic Policy Uncertainty And Stock Price Crash Risk

As entering a new stage of development,the century-old transformation is accelerating,a new development pattern is gradually taking shape,and unpredictable economic and political events keep emerging.From an international perspective,political conflicts keep emerging,the recovery of the world economy is tortuous,and the risk of recession is increasing.China’s economic policies and strategies are being put to the test.From a domestic perspective,the economy is steady and positive,and high-quality development on the new journey is seeking steady progress.However,the three pressures are constantly piling up,the risks of grey rhinoceros and black swan still cannot be ignored,and the uncertainty of economic policies is rising rapidly.At the same time,the collapse of stock prices in the capital market will not only lead to a large decline in wealth,but also make investors suffer heavy losses and further destroy the stability of the financial market.The impact of economic policy uncertainty on the capital market is a hot topic in the academic circle.Relevant researches pay more attention to the impact of stock price return and volatility,but pay less attention to extreme tail risk.Therefore,this paper hopes to study and analyze the impact of economic policy uncertainty on stock price crash risk in the context of the current era.Aiming at the theme of this paper,this paper uses the data related to A-share main board stocks from 2005 to 2020 to construct the index of stock price crash risk at the monthly level and the index of economic policy uncertainty proposed by Davis et al.(2019).After selecting relevant control variables,empirical analysis is carried out.Secondly,based on the theoretical framework,in the heterogeneity analysis,this paper considers the impact of different research reports,analyst attention,market environment,individual stock policy uncertainty exposure and institutional shareholding differences,and performs grouping regression.Moreover,in the further analysis,from the two perspectives of central bank communication and information disclosure,this paper studies whether central bank’s expectation management contributes to the current stability of capital market sentiment and whether the management improves information disclosure after the increase of crash risk.Then this paper summarizes the relevant literature research,theoretically and empirically discusses the two ways that policy uncertainty affects the risk of stock price collapse:(1)Policy uncertainty affects the information asymmetry of companies by affecting earnings management,insider trading and other factors;(2)Policy uncertainty will increase the herd behavior of investors,thus promoting the bubble of stock prices.Finally,this paper conducts robustness test and endogeneity analysis by some methods.The main contributions of this paper are as follows:(1)The time frequency analysis of economic policy uncertainty on stock price crash risk is extended from annual/quarterly to monthly,and I found that economic policy uncertainty significantly increases the risk of a crash.(2)In the heterogeneity analysis,this paper found that the lower the research report and analyst attention,the higher the exposure of individual stock policy uncertainty and the lower the proportion of institutional ownership in the bull market stage,the greater the impact of economic policy uncertainty on the stock price crash risk.(3)It finds that the "timely support" of central bank communication can better ease the market’s concerns about policy uncertainty.However,to some extent,the management did not "make amends" and did not improve the quality of information disclosure after the risk increased.(4)A more detailed discussion is made in the mechanism analysis.This paper conducts an empirical analysis from the perspective of information asymmetry and herding behavior,and finds that both are influencing mechanisms that enhance the risk of stock price crash.(5)Robustness and endogeneity are comprehensively discussed in this paper,including the consideration of macro effects,the use of instrumental variable method,and the use of DID model from the perspective of abnormal change of officials.There are still some shortcomings in this paper:(1)Intra-day high-frequency data is not used to better analyze the monthly crash risk,mainly due to technical and hardware constraints,and when adjusting to the monthly frequency,the corresponding calculation formula of stock price crash risk may need to be adjusted due to various conditions.(2)The policy uncertainty index mainly adopts the EPU index proposed by Davis et al.(2019)and the index constructed based on Baker et al(2016)as the robustness test.However,the information provided by newspapers may not be sufficient.In addition,relevant methods can be found to measure the policy uncertainty indicators of individual stocks to further verify the research in this paper.This paper expands the research on stock price crash risk,provides a more general framework and empirical evidence for how economic policy uncertainty affects stock price crash risk from the dual perspectives of information asymmetry and investor behavior,and widens the research boundary and enrichs the research content in heterogeneity and further research.And this paper puts forward relevant policy suggestions to provide some references for government departments,based on the empirical results,investors and listed companies,etc.,which will help the government attach importance to the consistency and predictability of economic policies,continue to deepen the reform of financial markets,improve the level of corporate governance,emphasize investor education,and promote the capital market to better support the real economy.