An Empirical Study On The Relationship Between Economic Policy Uncertainty And China's Stock Market Volatility

Volatility is an important topic in stock market research.The moderate fluctuation of stock market can effectively play its role in resource allocation and financing,which has positive significance for the stable operation and healthy development of the stock market.However,the excessive volatility of the stock market not only has a huge impact on the stock market itself,but also makes the stock market run disorderly and causes market speculation activities to prevail,and to a certain extent,the financial system is disordered and affects the stable development of the macro economy.This negative impact is even more Farreaching.There are many factors affecting stock market volatility.In a mature market,its volatility mainly reflects the uncertainty in the process of macroeconomic development.Therefore,economic policy as one of the influencing factors in the macro economy will inevitably affect the stock market volatility.On the one hand,the uncertainty of economic policy will affect its investment behavior to a certain extent by acting on investors' expectations of the stock market;on the other hand,the spillover effect of stock market volatility on macroeconomic fluctuations will also affect the uncertainty of economic policy.Sex.In this context,due to the short development time of China's stock market,there are still some imperfections compared with mature markets.The complex and versatile relationship with the macro economy makes the function of the stock market “barometer” not effectively reflected,which is the important reason for this result.There is a "policy city" feature of China's stock market.Therefore,the study of the relationship between China's economic policy uncertainty and stock market volatility will be conducive to the continuous improvement and steady development of China's stock market.In view of this,based on the analysis of the theory of economic policy uncertainty and stock market volatility,this paper concludes that the impact of economic policy uncertainty on stock market volatility is mainly transmitted through financial friction and real options,and further passed.The qualitative analysis of China's economic policy uncertainty and stock market volatility shows that there is a certain relationship between the two.Secondly,this paper studies the correlation between China's economic policy uncertainty and stock market volatility by constructing a mixed-data model for the economic policy uncertainty index from January 1995 to December 2018 and the Shanghai Composite Index.The empirical results show that: In the mixed Granger causality test,the results show that China's stock market volatility is the Granger cause of economic policy uncertainty in the shorter forecast period,while the longer-term performance of economic policy uncertainty is the Granger cause of stock market volatility.Second,based on the decomposition of stock market volatility into short-term high-frequency fluctuations and long-term low-frequency fluctuations,the GARCH-MIDAS model can effectively fit the relationship between China's economic policy uncertainty and stock market volatility,and from the empirical results.It is found that China's economic policy uncertainty has a greater impact on the long-term low-frequency fluctuations of China's stock market,but its contribution to the overall stock market volatility is limited.In addition,the paper has the following innovations in the research process: First,the quantitative analysis of the economic policy uncertainty index expands the research perspective of economic policy uncertainty;Second,the innovative use of the mixing data construction model makes up for In the traditional empirical evidence,the loss of high-frequency data information;Third,the research in this paper is not only limited to the study of the relationship between economic policy uncertainty and stock market volatility,but also focuses on a comprehensive and systematic study of the impact of economic policy uncertainty on stock market volatility.Finally,based on the research conclusions,this paper gives recommendations from the perspectives of policy makers,regulators and stock market investors,that is,policy makers should consider the overallity,stability and sustainability of policies when formulating economic policies,and adjust them actively and timely.The policy guides the public to rational investment;the regulatory department should cooperate with the improvement and improvement of the multi-level financial market system to improve the efficiency of the stock market supervision;investors should make reasonable reference to economic policies to make rational expectations and investment decisions,and avoid irrational investment behavior.