Uncertainty And Asset Pricing In Chinese Stock Market From Multi-Dimensional Perspectives

Uncertainty generally exists in all fields of society.It widely affects things from macroeconomic performance to micro-individual decision-making.At the macro level,uncertainty usually rises sharply with major political or economic events.In the past decade,the world has experienced a series of major events such as the European debt crisis,the Syrian war,Brexit,the Sino-US trade war,and the COVID-19 epidemic.The outbreaks of such events have not only shaped the global politics and economy but also produced a series of uncertainty shocks,which in turn triggered turbulence in the economic environment and financial markets.Just like today,the global economy is still under the influence of the uncertainty brought about by the epidemic.In addition to its practical significance,uncertainty is also concerned by academic community.Benefitted from the development of information science,statistics and other disciplines,people made some progress on the research about measurement method and empirical study of uncertainty.However,broad and vague conceptual of uncertainty,there is still a lack of systematic and comprehensive analysis framework in the research on uncertainty.In this paper,I explore the relationship between uncertainty and the Chinese stock market from multi-dimensional perspectives based on the paradigm of empirical asset pricing.This paper systematically and comprehensively studies the impact of uncertainty on asset prices in Chinese stock market from the perspectives of macroeconomic uncertainty,micro uncertainty,and policy uncertainty for the first time.From the macro perspective,this paper finds that Chinese macroeconomic uncertainty(CMU)has significant predictive power for the Chinese A-share market's return in time series.A CMU shock would cause an increase in the expected return of the stock market and the predictive power cannot be explained by other common predictors.The conclusions of this paper are different from the empirical findings in the U.S.,in which the U.S.macroeconomic uncertainty(AMU)exhibits a negative premium in the stock market.Through further comparison,it is found that there are cyclical differences in macroeconomic uncertainty between China and the U.S.During the sample period,CMU exhibits procyclical characteristics,while U.S.macroeconomic uncertainty exhibits countercyclical characteristics.This finding shows that CMU is mainly caused by the unexpected growth of macroeconomic,while the AMU is mainly caused by the recession in the macroeconomic.In addition,although previous study has found a spillover effect exists between CMU and AMU,the AMU cannot predict the expected return of the Chinese stock market.That is to say,the pricing capability of macrolevel uncertainty to the stock market.is limited to the local market.From the micro perspective,this paper finds that micro-uncertainty generates a negative premium in the cross-sectional expected of stocks in Chinese stock market.Based on the high-frequency data of return,this paper uses the relative signal jump variation of stock price to describe the nature and extent of the micro-uncertainty impact.When the stock price reflects "good" uncertainty,the corresponding stocks show lower performance.While the stock price reflects the "bad" uncertainty,the corresponding stock has a higher expected return.Micro-uncertainty shocks can affect the cross-sectional return from two specific mechanisms,including the risk premium of higher-order moments of return and the reversal effect caused by investors' overreaction to uncertainty.In addition,the research results also show that micro-uncertainty has practical application value in the region of asset portfolio allocation.Policy uncertainty is more like a mid-level uncertainty.Compared with the first two types of uncertainty,policy uncertainty originating from abroad provides a stronger exogenous perspective for the study of this article.This paper finds the U.S.trade policy uncertainty(TPU)has a negative correlation with the cross-sectional expected return of stocks in the Chinese stock market.Stocks with higher loading factors on TPU has lower expected return,while stocks with lower factor loading factors have higher expected returns than others.In the robustness check,this article tried methods such as changing the measurement of factor exposure,extending the holding period of the investment portfolio,and excluding small market value samples with different cutoff points.These tests still got consistent results.From the perspective of mechanism explanation,both investors' rational and irrational behavior can lead to this negative premium.On the one hand,in order to hedge against the negative impact of uncertainty,investors are willing to pay higher prices for stocks with positive uncertainty factors and accept lower expected returns;on the other hand,when there is a policy shock,the random beliefs of irrational investors turn into pessimistic beliefs.They tend to sell stocks that are negatively exposure to the uncertainty of U.S.trade policy.The behavior driven by pessimism will lead to the selling of stocks with lower uncertainty factors and underestimation of the intrinsic value.When the trade policy uncertainty tends to ease,the undervalued stocks will have a rebound on its stock price,therefore have higher expected returns.In addition,to compare with previous studies,this article also incorporates Chinese economic policy uncertainty(CEPU)into the model.Unlike previous findings,this article finds that CEPU does not have a significant impact on the cross-sectional expected return of A-share stocks,and will not weaken the pricing power of TPU.In summary,the research in this paper systematically studies the asset pricing power and pricing mechanism of uncertainty in the Chinese stock market by establishing a unified framework based on the empirical asset pricing paradigm.This paper complements previous studies on uncertainty and asset pricing,and find the mechanisms of differences in pricing effect between different types of uncertainties.The research in this article has practical significance for understanding the heterogeneity of stock market investors,the pricing mechanism of the stock market,the risk control and asset allocation of the Chinese stock market under the impact of uncertainty.