Studies On The Relationship Between Stock Market Volatility And Economic Policy Uncertainty In China

Volatility is a classic theme in the stock market research.The moderate volatility of the stock market will helpful for the stock market to better play its role in financing and resource allocation,which has a positive effect on the regulation and healthy development of the stock market.However,the excessive volatility of the stock market not only caused a huge impact on the market itself,disorder the market,and lead to the proliferation of speculation,but also led to the fragility of the financial system at a certain extent,affecting the stable development of macroeconomic.The stock market will be affected by economic policy during its development process.On the one hand,economic policy uncertainty(EPU)will affect the stock market expectations and behavior.On the other hand,the spillover effect of stock market volatility will in turn affect EPU.There have two significant changes in EPU especially after the international financial crisis.First,the level of EPU soared due to the uncertain expectation of business and personal taxation,expenditure,supervision,health care and monetary policy during the period of recession caused by the global financial crisis.Second,enterprises and individuals will delay their investment,employment,consumption and expenditure,and thus slow down the pace of economic recovery due to the EPU.The relationship between the stock market and China's macroeconomic is changing over time,and the failed of “barometer” function of stock market is cause by the policy-oriented market,which means the ups and downs of stock market price could affect by the economic policy,and the operation of stock market and macroeconomic is not synchronized,or even departed.Therefore,the research of the relationship between stock market volatility and EPU is attracting more and more attention from investors and researchers.However,the aim of our study is to find the trajectory and the laws of stock market operation instead of eliminate the stock market volatility,by fully understand the main characteristics of China's stock market volatility and the typical facts of volatility clustering,asymmetric,long memory and persistence of the stock market volatility.Therefore we can avoid the impact of excessive volatility of the stock market to the macroeconomic,and let the moderate stock market volatility to play a positive impact on the macroeconomic.Meanwhile,we are trying to better analyze the stock market volatility characteristics and the reasons by explore the impact and contribution of EPU on China's stock market volatility.Then,the stock market could play its “barometer” role on macroeconomic in a suitable way and right time,and provide a constructive suggestion for the formulation and implementation of macroeconomic policies.In view of this,we can systematic study on the causal relationship between stock market volatility and EPU,long-term volatility and correlation of stock market with mixed frequency model.The study is been investigate in accordance with the framework of “issue of the problem ? the description of the facts ? model deduction ? model test ? model results ? conclusions and recommendations”,and under the context of increasingly close relationship ?between stock market volatility and EPU.In the first chapter,the paper proposes the research topic and analyzes the research significance base on the explanation of related concepts and definitions of stock market volatility and EPU.Then,we review the current situation and theoretical basis of economic uncertainty,policy uncertainty and economic policy uncertainty separately,especially pay attention to the theoretical basis and the research status of the correlation between EPU and stock market volatility.Finally,the research method and framework of the whole paper are present.The second chapter analyzes the typical characteristics of China's stock market volatility,and makes a basic summary and paves the way for the later research.In this chapter,we summarizes and analyzes the measurement methods of stock market returns and volatility,and then summarize the theoretical models of the volatility clustering,asymmetric and long memory characteristics in China's stock market.Four type of GARCH models are used to compare and analyzed the volatility clustering and asymmetric features in the stock market and the goodness of fit show the EGARCH model is the best in the four models.In the third chapter,the GARCH model and its extended model are used to analyze the heteroskedasticity,asymmetry and long memory of China's stock market volatility.Then,the dynamic conditional correlation model is used to analyze the correlation between China's Shanghai and Shenzhen stock markets,as well as China and the surrounding areas and the dynamic correlation between China and other BRIC stock markets,after that the integration characteristics of stock markets has been analyzed.The results of the ARMA-FIAPARCH model shows that the volatility clustering,asymmetric and long memory characteristics are typical characteristics of China's stock market.The results of dynamic correlation between the stock markets shows that the correlation and the degree of integration of Greater China stock markets is high,while the correlation between BRIC countries and the degree of integration is relatively low.The paper begins to analyze the relationship between stock market volatility and EPU with mixed-frequency model since the fourth chapter.In the fourth chapter,the mixed frequency Granger causality test is used to compare the causality between China's stock market volatility and EPU.The results show that the mixed frequency model has a comparative advantage in test the null hypothesis of “stock market volatility is not the Granger cause of economic uncertainty”.In order to test the stability of causal relationship between stock market volatility and EPU in China,the paper uses the fixed and recursive windows time-varying Granger causality test to analyze the time-varying characteristics of causality.The results show that the mixed frequency Granger causality test does not find the Granger causality between the two,while the same low frequency Granger causality test show the bidirectional Granger causality at some time.In the fifth chapter,the GARCH-MIDAS model,combined the mixed frequency model with GARCH model,and then estimate the long-term fluctuation of the stock market and compare the contribution of economic policies to stock market volatility in different models.The empirical results show that the influence of China's EPU on the volatility of the stock market is relatively weak,and the contribution of the volatility of EPU is much greater and more significant than the contribution of the level of EPU.Chapter 6 adopt the DCC-MIDAS model to measure the long-term correlation of China's stock market and then use the regime switching model to model the asymmetric and regime switching influence from EPU to the long-term correlation between China and Shanghai stock market.The empirical study has shown that the long-term correlation between Shanghai and Shenzhen stock market is basically above 0.9,and has very strong persistence and stability.Moreover,the relationship between EPU and long-term correlation of China stock market will change with the regime and the long-term dynamic correlation will increase with the rise of EPU.All in all,the overall relationship between EPU and China's stock market volatility and correlation is positive,which means the rise of EPU will increase our stock Market volatility,and promote the correlation between the stock market increased.In the seventh chapter,the paper summarizes the basic conclusions and shortcomings of this paper.