An Empirical Analysis Of The Impact Of Economic Policy Uncertainty On Stock Market Volatility

Since China's economy has entered a new stage of the new normal,the downward pressure on the country's economy needs to be resolved and hedged with a new round of reform and opening up and a new round of supply side structural reforms.This is not only the key period of China's economic structural transformation,the cumulative release period of deep-seated problems,but also the implementation period of China's new round of major reforms.It is also the fission period of world economic structure and order.In order to cope with the complex domestic and international environment,get rid of the new normal downturn and move towards the high quality development mode,the government will implement various regulatory policies in all fields to protect the healthy and stable operation of the economy and achieve sustained economic growth in order to safeguard the national economy and the people's livelihood.By observing the policy implementation frequency in the past 3 years.The frequent introduction of regulatory policies has made economic policy uncertainties continue to improve.As a convoy for the operation of the market economy,when the economy is confronted with difficulties and setbacks,our government is eager to carry out the reform policy.Its fundamental starting point is to maintain the healthy operation of the economy and protect the interests of the masses.However,the non-continuity and nonstationary nature of the policies caused by the uncertainty of economic policies result in speculative Psychology among all the participants in the market economy except the government.Then,a series of speculative behavior is triggered,which leads to the weakening of the regulation function of the policy itself and the failure to achieve the expected regulation.The most important factor in the speculation caused by the uncertainty of economic policy in the economic field is the stock market which is hard pressed by itself.China's stock market has developed rapidly since its formal establishment,and the scale of transactions has been expanding.Because China's stock market is not formed spontaneously by the market economy,it is led by the government and promoted its development step by step.Therefore,all aspects of the stock market operation are affected by government policies.Even though the current government is increasingly pushing forward the market economy's important role in the development of stock market,"policy market" has always been one of the important characteristics of China's stock market.The moderate fluctuation of stock market is conducive to the orderly and healthy development of the stock market,and plays an important role in promoting economic operation.However,the abnormal fluctuations in the stock market will greatly harm the development of the real economy and hurt the interests of investors and entrepreneurs.Damaging the smooth operation of financial market has important research value.Based on this background,we study the inherent impact of economic policy uncertainty on stock market volatility from various angles,trying to find out the mechanism of its impact and the fundamental influence of heterogeneity,and provide some policy recommendations.Based on the uncertainty of economic policy and the basic trend and fluctuation characteristics of the stock market,the mechanism of the impact of economic policy uncertainty on stock market volatility is divided into 7 chapters,which are roughly divided into 4 parts.The first part is the first chapter and the second chapter.First of all,in the beginning of the article,the background and significance of the study are elaborated,and the realistic environment and development problems facing our economy are systematically analyzed.On the basis of this,the important practical significance of this study is pointed out.This paper briefly analyzes the research train of thought and a series of research methods used in the paper.In the second chapter,the paper makes a literature review from two aspects,namely,the quantitative indicators of uncertainty in economic policy and the volatility of stock market.In order to lay a theoretical foundation for the selection of control variables in the subsequent empirical analysis,through the study of the impact of the existing economic policy uncertainty on the stock market,this paper sorts out some commonly used technical means and ideas,and points out the shortcomings of the existing research,laying the groundwork for the following research work in this paper.The second part is the third chapter and the fourth chapter.In the in-depth analysis of the dynamic correlation between the two key variables,this paper,in the third chapter,makes an in-depth description of the economic policy uncertainty index and the two major elements of China's stock market operation.According to the EPU index formulated by Baker et al.According to the South China Morning Post(SCMP),the largest Chinese newspaper in Hongkong,the EPU index formulated by Steven J.Davis and other two mainland newspapers according to Guangming Daily and people's daily is used as a quantitative index of China's economic policy uncertainty index.The data sources and standards of China EPU index are analyzed in detail.And through the trend analysis of EPU index and important key nodes,it is verified that the index has strong representativeness for economic policy uncertainty,and its comprehensive and sustainability makes the EPU index unmatched by other quantitative indicators.This paper verifies the scientificalness of the index selected in this paper.Secondly,it selects the most representative Shanghai Composite Index for Volatility Characteristics Analysis Based on the analysis of the operational characteristics of the stock market.Through the analysis of the characteristics of the two elements by the GARCH model,it is found that both have the common distribution characteristics of autocorrelation,peak to tail,volatility aggregation and heteroscedasticity.It lays an important foundation for the dynamic correlation analysis between the fourth chapters.In the fourth chapter,the dynamic relationship between economic policy uncertainty and stock market volatility is studied.From the perspective of the whole stock market,taking the January 1995 to April 2019 as the sample interval,the dynamic change of the correlation between them is discussed based on the Va R theory of structural change.All of them have undergone several important turning points and different development periods.Therefore,the correlation between them is not invariable.Therefore,this paper selects the VAR model based on structural break points to analyze the dynamic correlation between them.Through empirical analysis,it is found that there are 3 structural changes in the relationship between economic policy uncertainty and the volatility of Shanghai Composite Index.The samples were divided into 4 stages in November 1999,October 2007 and October 2016 respectively.In the first stage(1995.1-1999.11),the two variable VAR model coefficients can be seen to have negative effects on each other.The corresponding impulse response diagram and variance decomposition also show side effects.The second stage(1999.12-2007.10),economic policy uncertainty has a positive positive impact on the stock market volatility,and is the Grainger reason for stock volatility.In the third stage(2007.11-2016.10),the bivariate coefficient is positive.Moreover,the mlepu index is the Grainger reason for the fluctuation of stock market.The change of economic policy uncertainty and the increase of stock market volatility have a positive effect on each other.In the fourth stage(2016.11-2019.4),the bivariate mutual influence coefficient is positive,and the stock market volatility is the Grainger reason for the uncertainty of economic policy.The impact on each other is greater.The reasons for each stage showing different states are described in more detail in the text.The third part is the fifth chapter and the sixth chapter.The impact of economic policy uncertainty on the fluctuation of individual stock returns is mainly through two important channels,the first is the influence of the stock price volatility,such as the nature and scale of the company,through the characteristics of the fundamentals of the company.The second is to influence the stock volatility through speculative behavior of investors.The fifth chapter focuses on the analysis of the heterogeneity of the impact of economic policy uncertainty on stocks based on the fundamental characteristics of enterprises.The stock volatility of A-share listed companies listed on Shanghai Stock Exchange and Shenzhen stock exchange is selected as the research object.From December 1999 to December 2018 as the sample interval,the empirical analysis of panel data dual fixed effect model shows that during the abnormal fluctuations of stock market,such as the 2007 global financial crisis,the effect of economic policy uncertainty on the fluctuation of stocks was significantly higher than that of normal period.However,during the period of stock market crash in 2015,the effect of economic policy uncertainty on stock market has changed significantly,and has not been aggravated by the same trend as before.This shows that with the development of stock market and the improvement of supervision and management mechanism,investors and business operators may have a self protective wait-and-see attitude to reduce the turnover rate of stock trading to slow down the risk.It is found that the ability of state-owned enterprises to deal with the uncertain impact of economic policies is significantly stronger than that of non-state-owned enterprises.Once again,the sample size is divided by the size of enterprises and the rate of return on equity.It is found that the stock volatility and the low capital return rate of enterprises are more vulnerable to the impact of economic policy uncertainty.The sixth chapter analyzes the asymmetric influence of economic policy uncertainty on stocks fluctuation from another angle of investors in the stock market.Taking into account the availability of data,we choose the A-share listed companies in Shenzhen Stock Exchange and Shanghai Stock Exchange as the research object,delete the share,financial enterprises and data missing enterprises,and take February 2003 to December 2018 as the sample interval.From the two angles of institutional investors and investor sentiment,the empirical analysis shows that the proportion of institutional investors in listed companies has a moderate effect on the fluctuation of stocks,that is,effectively reducing the volatility of individual stocks,while investor sentiment has a positive effect on the fluctuation of stocks,that is,when investor sentiment is high,Further considering the heterogeneity effect of economic policy uncertainty and its interaction items,it is found that when the proportion of institutional investors increases,the marginal effect of economic policy uncertainty index on the fluctuation of stocks is weakened,that is,the negative effect of economic policy uncertainty on individual stocks fluctuates when the proportion of institutional investors is relatively high.Although the result is not very significant.By observing the interaction coefficient between EPU index and investor sentiment index,it is found that the increase of investor sentiment leads to an increase in the marginal effect of economic policy uncertainty on the fluctuation of stocks,that is,when the investor sentiment is high,the increase of economic policy uncertainty leads to a more significant change in stock returns.The fourth part is the seventh chapter.After a thorough and thorough analysis of the foregoing,the seventh chapter makes a conclusive summary of the article and puts forward 6 suggestions for the government to formulate policies and investors to make decisions based on the conclusions.Finally,the article points out the shortcomings and further research prospects of this article.In the hope that scholars in the future research in this field can be more in-depth and comprehensive.