The Study Of The Correlation Between Economic Policy And The Stock Market Volatility

China’s stock market started relatively late, the stock market is a process of continuous adjustment, the market system is not mature, the laws and regulations are not perfect, government regulators often issued a series of policies to rectify some of the problem. At the same time, China’s economy is still in development stage, in order to sustain continuous and steady economic growth, the government issued many policies of macroeconomic regulation, these actions could easily lead to frequent stock market fluctuations, also have brought serious loss to the stock market and investors, which is not conducive to the long-term development of the stock market.In contrast, there is also a phenomenon that the stock lead to the issue of police, such as in late June 2015, to clean up the OTC capital oriented to leverage adjustment, leading to a rapid decline in the stock index. Crash forced the government to introduce a number of policies to rescue the market, including lowering the rate cut, to pause IPO, to limit stock index futures trading frequency and so on, to reduce volatility in the stock market.This paper selects the data from January 1995 to December 2015 to analyze the relationship between stock market volatility and economic policy uncertainty. First of all, according to the framework of theoretical analysis, this paper uses the event study on different types of economic policy; found that the economic policy have become one of the important factors in the short term fluctuation of China’s stock market. Then combined with the Shanghai Composite Index, this paper chooses good and bad policies in the bull market and bear market. This paper found that a bad policy, in the bear market, may lead to the stock market overreact. And in the bull market, good policy also significantly increased volatility. Bad policy in a bull market and positive policy in a bear market will cause a phenomenon called" speed bumps", volatility of the stock market decline in the short term, but does not change the long-term trend. At the same time, this paper also found that stock market policy information may leak in our country. Secondly, this paper constructs a bivariate VAR model, and carries out Johansen cointegration test. It is found that there is a long-term stable relationship between economic policy uncertainty index and stock market volatility. In order to analyze the correlation of long-term trends, this paper uses the sliding average method to measure the MA30 and MA60. It is found that in a bull market, correlation of the EPU and stock market volatility is positively related to the rising trend, instead in the bear market, the EPU and stock market volatility rate is negatively related to the rising trend, the correlation were becoming more and more obvious. In volatile markets, the relationship is gradually weakening, there is no significant correlation.Finally, this paper analyzes the empirical results and gives suggestions on the healthy development of the stock market in China, and points out the shortcomings of the paper and the direction of future research.