An Empirical Study On The Relationship Between Policy Events And Jumps Of Stock Market

Scholars have done many researches on the impact of policies on the stock market, but there are few studies on the relationship between policy events and jumps of the stock market.So this paper makes an empirical study on such relationship through jump-diffusion model and MCMC method.At first,we collect various relevant policy news,classifying them into categories according to their different policy natures,constructing the policy events dummy variables time series.Next,by the method of MCMC,we estimate the parameters,latent variables and change point in jump diffusion process from discrete observations.And then,we do some statistical analysis on the relationship among policy events and jump probabilities and jump sizes.Our empirical results show the following points:First,stock returns appear some regularities when some categories of policy events occur.Second,by analyzing the jump diffusion model with change point,we find that the change point is near the date when the regulation of price limit came into effect.Third,on average,jump probability increases with the issue of new stock market policy;jump probability remains the same when macro economic policy event occurs.The policy events and jumps are closely associated.Among all kinds of policy events,stock market policy is the major factor that makes the stock market jump,and the macro economic policy plays a minor role.Our research deepens the understanding of the relationship between policy events and jumps of the stock market,as well as have some interesting implicant for asset pricing,portfolio selection and rick management.