Research On The Influence Of Economic Policy Uncertainty On Stock Market?Bond Market And Their Dynamic Correlation In China

With the deepening of financial market integration and liberalization,the trend of inter-market linkage among financial markets is becoming stronger and stronger.Stock market and bond market are not only the main financing channels for companies,but also the main financial markets for investors to participate in the secondary market investment.However,China's economic system is in the stage of transformation and upgrading,and still faces great uncertainty.Economic policies often undergo major changes,and capital allocation in the financial market is also greatly affected when the economic policies are "constantly changing".At present,there are few domestic studies on the impact of economic policy uncertainty(EPU)on financial markets,especially the bond market and the correlation between stocks and bonds.This paper studies the impact of economic policy uncertainty on the volatility of these two basic financial markets and the dynamic correlation between them.To some extent,it makes up for the deficiencies in this research.In this paper,qualitative analysis and quantitative analysis are combined to carry out two aspects of research.Firstly,based on the GARCH-MIDAS model of mixed frequency data,the volatility of the daily return time series of the stock market and the bond market is decomposed into the long-term and short-term parts,and the absolute change of EPU is incorporated into the GARCH-MIDAS model to study the influence of the long-term components of the stock market and the bond market respectively.The results show that the absolute change of EPU has a significant positive impact on the long-term volatility of the stock market and the long-term volatility of the bond market,with a regression coefficient of 0.0843 and 0.0977 respectively.The two regression coefficients are nearly the same,which indicates that the absolute change of EPU affects the stock market yield to the same degree as the bond market yield,and its contribution rate to the volatility of the two markets is nearly similar.Then,based on the DCC-MIDAS model of mixed data,the dynamic correlation between the daily returns of the stock market and the bond market is decomposed into the long-term and short-term parts,and the influence of the absolute change of EPU on the long-term part of the dynamic correlation between the two markets is analyzed.The results of the sequence diagram of the dynamic correlation between the two markets show that the fluctuation value of the dynamic correlation coefficient between the two markets is relatively small.On the whole,the correlation is relatively strong,and the connection between the two markets is relatively stable.Meanwhile,the empirical results of the DCC-MIDAS model show that the regression coefficient of the absolute change of EPU on the dynamic correlation is-0.0326,which is significantly negative.It indicates that the greater the absolute change of EPU is,the lower the correlation between the stock market and the bond market will be.When the uncertainty of economic policy reaches a certain level,the correlation coefficient between the two markets will be negative,that is,the change trend of the dynamic correlation between the two markets is closely related to the EPU.