Research On Time-varying Return And Volatility Spillovers Of Economic Policy Uncertainty And Stock Market

At present,the world economy is undergoing a period of reform and adjustment.The uncertainties it faces are increasing,and policy adjustments are becoming more frequent.The economic policy uncertainty caused by this has attracted much attention from governments and scholars.Economic policy uncertainty can affect the stock market through the direct way of influencing the expectations and behaviors of market participants,and can also affect the stock market through the indirect way of consumption and investment channels.Therefore,in recent years,many scholars have studied the impacts of economic policy uncertainty on stock market returns and volatility.Research shows that the operation of the stock market will have an impact on the economic policy uncertainty in turn.Because the stock market fluctuations reflect the public's response to the current economy and policies and will be used by the government as a reference for decision-making.Obviously,the analysis of the interaction between economic policy uncertainty and the stock market can not only understand the underlying causes of the fluctuations of stock prices,but also provide a reference for investors in risk management and government control policies,which has important practical research significance.This study is based on the Chinese Economic Policy Uncertainty Index,the American Economic Policy Uncertainty Index,the Shanghai Stock Composite Index,and the stock price indexes of various industries.Firstly,the TVP-VAR model is used to investigate the time-varying bidirectional return spillovers between economic policy uncertainty and stock market.Secondly,Antonakakis and Gabauer's time-varying spillover index based on TVP-VAR model is used to investigate the time-varying bidirectional volatility spillovers between economic policy uncertainty and stock market.The main conclusions of this study are as follows:(1)In terms of return spillovers,during the major political and economic events such as the financial crisis,the European debt crisis and the Sino-US trade war,the economic policy uncertainty of China and the United States both have obvious negative return spillovers to the current Shanghai Composite Index,which can reach-4% at the maximum.With the extension of the lag period,the return spillovers will gradually weaken or even reach zero.In contrast,the negative spillovers of Chinese economic policy uncertainty are greater than that of the United States.The results of sub-industry research show that the energy industry stock market is affected by the negative return spillovers caused by the economic policy uncertainty most obviously.(2)In terms of volatility spillovers,there are bidirectional volatility spillovers between uncertainty and stock market.The total volatility spillovers of economic policy uncertainty on Shanghai Composite Index is much greater than the reverse volatility spillovers at most time during the sample period,and the Chinese stock market is more affected by the net volatility spillovers of Chinese economic policy uncertainty than American economic policy uncertainty.The results of sub-industry studies show that the net volatility spillovers of Chinese economic policy uncertainty on stocks in various industries is greater than that of the United States.In the late period of the financial crisis,the energy,raw materials and financial real estate industries suffered the most from the negative net volatility spillovers from the Chinese economic policy uncertainty,which can reach-10%.During the SinoUS trade war,the industrial sector suffered the greatest net volatility spillovers from Chinese economic policy uncertainty,which can reach-5%.In view of these,the following suggestions are put forward: when investors considering investment opportunities and making risk managements,they should take into account the degree of economic policy uncertainty of China and the United States.And investors should pay more attention to stock investment risks of energy sector in times of crisis.The governments should pay attention to communication with the public when regulating policies,especially energy and financial real estate industry policies,strengthen the management of policy expectations,so that the public can have a certain degree of confidence in the implementation direction and strength of future policies,which is conducive to the implementation of policies and the stability of investors' sentiments.