Policy Uncertainty And Stock Expected Returns

The policy is the main principle and measures for the country or government to solve social and economic problems in order to achieve macroeconomic goals such as economic growth,full employment,stable price levels,and balance of payments.Because of the various uncertain components in economic policies,namely policy uncertainty,due to the unpredictable components of economic-related policy changes.As long as there is government intervention in the market operation and new policies are introduced or implemented,there is policy uncertainty,which is a phenomenon that is common throughout the world.Compared with the mature economies in the world,China's policy uncertainty is more obvious.China is in a critical period of transformation to a post-industrialized society in the later stages of industrialization.On the one hand,it is necessary to continue to improving the market economic system,to play a decisive role in the market,and on the other hand,the government needs fiscal policy,monetary policy and industry.Policies and other economic policies guide the goal and direction of economic development.Especially in the face of economic downturn risks,the government needs to adjust the macroeconomic policies to ensure the smooth operation of the economy and win time for economic transformation.Policy uncertainty is not only a common phenomenon,but also affects the stock price trend in the stock market.There is an inherent relationship between policy uncertainty and stock return.China's stock market is a market that is not fully marketized.It is manifested in the initial public offering and pricing of listed companies,financial products and services,and other administrative interventions by the regulatory authorities.The policies are frequently changed,and the impact of policy uncertainty on Chinese stocks.The market is particularly evident.In addition,policy uncertainty will also affect the production and operation decisions of listed companies,leading to changes in the profitability and operating conditions of listed companies,especially for small and medium-sized listed companies in the growth stage,due to their smaller size,single business,and relatively concentrated risks.The impact of policy uncertainty is more obvious.Therefore,this paper has a strong practical significance in studying the relationship between China's policy uncertainty and stock expected return rate and company fundamentals.Asset pricing theory,as the core content of modern financial research,studies how to make a reasonable valuation of assets,especially securities assets.This field has a very standardized research framework and system for the relationship between risk factors and expected rate of return.It provides a standard paradigm for the study of the relationship between policy uncertainty and stock expected return.According to the idea of asset pricing,this paper constructs a dynamic optimal selection model from three aspects of listed companies,investors and government,according to the article of Pastor and Veronesi(2012).Through the random process of government policy affecting the profit rate of enterprises,random The discount factor introduces policy uncertainty into the stock price,demonstrating that policy uncertainty is a risk factor that affects the expected return rate of the stock,and lays a theoretical foundation for studying policy uncertainty and stock expected return rate and its mechanism.Based on the above-mentioned realistic and theoretical background,this paper systematically sorts out the domestic and international literature on the definition and measurement of policy uncertainty and the relationship between policy uncertainty and stock expected return rate.Combining theoretical analysis and empirical research methods,trying to explore the relationship between policy uncertainty and stock expected return rate: whether policy uncertainty is a risk factor affecting stock's expected rate of return,and explore from the perspective of company fundamentals The mechanism by which policy uncertainty affects the expected rate of return of stocks.Among them,this paper first uses the theoretical model to demonstrate that policy uncertainty is the factor that affects stock prices.Secondly,empirical research finds:(1)the negative correlation between the sensitivity of policy uncertainty and the expected return of stocks,which is negative.Policy uncertainty premium;(2)Policy uncertainty affects the fundamentals of listed companies,which in turn affects the expected rate of return of stocks;The logic of this paper is: The first chapter is the introduction part,its significance is to ask questions,to show the source of the research questions,and to briefly introduce the research significance,research methods and main contents and the innovation of this paper;the second chapter is the literature review Partly,its significance is to systematically sort out the research results of policy uncertainty and stock return rate at home and abroad,so as to understand the current research results in this field,analyze the existing deficiencies,and pave the way for the research questions of this paper;The third chapter is the theoretical analysis part.Its significance is to use the theoretical knowledge of economics and finance to construct a scientific and rationalized simplified model to theoretically analyze the relationship between policy uncertainty and stock expected return rate.The influence of certainty on stock price;the fourth chapter to the sixth chapter is the empirical research part,the significance of which is to empirically test the relationship between policy uncertainty and stock expected return rate through the standard research paradigm of asset pricing theory.Using empirical methods such as univariate analysis and panel fixed effects models to examine policies Qualitative impact on company fundamentals;seventh chapter is the conclusion,in the sense that the conclusions of the previous chapters briefly summarized,and policy recommendations for the paper main conclusions.The full text is divided into 7 chapters:The first chapter is the introduction,which mainly introduces the realistic and theoretical background,research significance,research methods and main contents of the research questions in this paper,as well as the main innovations of this paper.Chapter 2 is a literature review of this article.This part firstly sorts out the definition of policy uncertainty.Secondly,it summarizes the measurement uncertainty of policy.Finally,it summarizes the domestic and foreign literatures on the relationship between policy uncertainty and stock expected return.Chapter 3 presents the theoretical analysis and assumptions of this paper.Firstly,this chapter constructs a dynamic optimal selection model from three aspects: listed companies,investors and government.It demonstrates that policy uncertainty is a risk factor that affects the expected rate of return of stocks.Secondly,this chapter proposes policy uncertainty and stocks.The expected rate of return has the core assumption of internal connection,and on this basis,it further examines the impact of factors such as the nature of the enterprise,market status,and regional division on the internal relationship.Chapter 4 mainly empirically studies the relationship between policy uncertainty and stock expected return.This chapter first uses the univariate analysis and the Fama-Mac Beth regression method to find that the policy uncertainty sensitivity is negatively correlated with the combined expected rate of return.Further research finds that the relationship has long-term sustainable predictive power and will not be measured by policy uncertainty.The time interval is different and the effect of the industry changes,but the negative relationship will change due to the nature of the enterprise and the market state.Secondly,further research in this paper finds that the regional policy uncertainty is still negatively correlated with the expected return rate of individual stocks.The regional policy uncertainty premium is greater.Finally,the paper finds that the policy uncertainty premium cannot be explained by market attention and investor sentiment.The trait information of listed companies can only partially explain the policy uncertainty premium.Chapter 5 is the main empirical study of the impact of policy uncertainty on the fundamentals of listed companies.This chapter explores the channels and paths that policy uncertainty affects the expected rate of return of stocks from the perspective of the fundamentals of listed companies.First,using the Fama-Mac Beth regression method,this paper finds that the sensitivity of policy uncertainty is related to the fundamental characteristics of several listed companies.Secondly,after the univariate analysis and the panel fixed effect model,the difference in sensitivity of policy uncertainty is found.As a result,the fundamentals of listed companies are affected differently,which leads to the difference in expected yields of stocks.Finally,this paper finds that stocks with low sensitivity of policy uncertainty are mostly listed companies in the growth period,the company's profitability and management.The situation is more affected by policy uncertainty,the risk is relatively concentrated,and the stocks with high sensitivity of policy uncertainty are more likely to be listed companies in maturity.The company's profitability and operating conditions are less affected by policy uncertainty.The risks are relatively scattered.Chapter 6 is a test of the robustness of the main empirical results of Chapters4 and 5.Through the test of the uncertainty of the policy uncertainty and the impact object,it is found that the policy uncertainty measurement method will not change whether it is the measurement time interval of policy uncertainty,the source of policy data or other methods.The main conclusions of this paper,meanwhile,the impact of policy uncertainty on the expected yield of regional stocks or indices is also consistent,indicating that the main conclusions of this paper are robust and reliable.Chapter 7 is a summary of the theoretical model derivation and empirical research conclusions above,and accordingly proposes corresponding policy recommendations: encourage government departments to do a good job of investor expectations management in policy release,and strengthen with listed companies Communicate,enhance policy transparency,and balance the relationship between the market and the government;The main innovations and contributions of this paper are:First,study the topic.There are many factors in the domestic and foreign literatures that affect the cross-sectional yield of stocks,but most of them are based on certain characteristics of companies or stocks.Few people explore the relationship between policy and stock returns,while the Chinese stock market is a The typical “policy market” has a wide and profound impact on the expected return rate of stocks.From the perspective of policy uncertainty,this paper conducts an in-depth study on the intrinsic relationship between policy and stock expected return rate,and examines the nature of the enterprise and the market.The influence of factors such as status and time continuity on the relationship between the two,and from the perspective of the fundamentals of listed companies,explored the channels and mechanisms of policy uncertainty affecting the expected rate of return of stocks,enriching the research in this field.Second,a measure of policy uncertainty.This paper adopts the Content Analysis method to construct the policy uncertainty,and extracts the fiscal policy and currency by using the text mining method for the title and full text of all laws and regulations in the Wanfang-Chinese Law and Regulations full-text database.Keywords related to economic policies such as policies and industrial policies will be extracted from the laws and regulations directly related to the stock market.The monthly cumulative count is the policy quantity policy,and the policy rate uncertainty rate is used to represent the policy uncertainty index PU.In addition,in order to ensure that the policies related to the stock market are effectively screened out from the database,this paper also uses some keyword screening and manual judgment to separate some administrative litigation and reconsideration policies from the stock market.Eliminate and ensure the reasonableness of the number of policies obtained.