Research On The Impact Of Economic Policy Uncertainty On The Financial Asset Returns

At present,China’s economy is facing changes in economic growth rate,adjustment of economic structure and transformation of development model and is in the "new normal" stage of development.In addition,the world in profound changes unseen in a century,will make our country’s economic policy uncertainty(EPU)increasing.In the context of China’s immature financial system,EPU will aggravate the risk of future economic operation.Therefore,the recognition of the effect of economic policy uncertainty on financial markets is be beneficial to maintain the effectiveness of macroeconomic policies and the stability of financial markets.This paper first defines the uncertainty of economic policy,and then analyzes the theoretical mechanism of economic policy uncertainty affecting financial asset prices.The empirical analysis of this paper takes the relevant data from January 2015 to August 2021 as samples and establishes a Quantile-on-Quantile Regression model(QQR)based on wavelet transform,to explore the impact of different degrees of economic policy uncertainty on stock,bond and foreign exchange returns at different time scales and in different market states.The results show that :(1)The impact of EPU on financial asset returns is asymmetric.When the market is in a bear market,economic policy uncertainty will reduce the return on financial assets.When the market is in a bull market,high uncertainty will reduce the return on stocks and increase the return on bonds and foreign exchange.(2)Different degrees of economic policy uncertainty have different impacts on financial asset returns.High uncertainty has a stronger negative impact on stock returns than low uncertainty.The impact of high economic uncertainty will reduce foreign exchange returns,while low uncertainty will help improve foreign exchange returns.(3)The impact of economic policy uncertainty on financial asset returns will change with the change of time scale.When markets are depressed,a high degree of economic policy uncertainty reduces equity returns and increases bond and foreign exchange returns in the short run,but the opposite is true in the long run.Finally,according to relevant theories and empirical results,combined with China’s current situation,this paper throws out the following suggestion: First,the government should take how to reduce the negative impact of the uncertainty brought by policy changes on the financial market into account before making policies.Second,investors should pay close attention to policy changes and market trends,develop diversified portfolios to avoiding risks.Third,we need to improve the market order and the financial market system,enhance the market’s self-regulation capacity.