Economic Policy Uncertainty,Investor Sentiment And Stock Market Return

Since the 20 th century,domestic and foreign stock markets have frequently experienced wild fluctuations.The outbreak of the financial crisis in 2008 and the up-and-down "roller coaster" of my country’s stock market in 2015 caused huge economic losses for stock investors,which are not conducive to social stability and economic development.Unfortunately,the old wounds have not healed and new ones have been added.A new and unexpected corona pneumonia epidemic has dragged world economic development into a state of panic and chaos.Economic development has encountered a cold snap and downward pressure has become more and more prominent.In order to achieve macroeconomic recovery,the governments of various countries have frequently introduced various macroeconomic control policies in the short term,resulting in a significant increase in the global Economic Policy Uncertainty Index(EPU).to price bubbles in global assets.The adjustment of economic policies will significantly affect the stable development of the stock market.Excessive fluctuations in policy factors will result in wild swings in the stock market.This makes national investors begin to focus on studying the impact of changes in economic policies on returns.of the stock market.Compared with mature financial markets abroad,China’s stock market is still in the perfect stage.Most investors in the market are retail investors,who are poorly informed and play the role of "noise traders".Excitement is an important noise for investors,which will make investors blindly follow the trend of frequent changes in economic policies,chase up and down,and promote various hot sectors and other irrational investment behavior.The interaction is further amplified to form a group behavior deviance,eventually leading to an irrational investment frenzy and panic throughout the financial market.Therefore,it is necessary to analyze the correlation between economic policy uncertainty,investor sentiment and stock market returns.Based on this,this paper chooses the Shanghai Composite Equity Index as the research object,takes 162 monthly data from July 2008 to December 2021 as the sample interval,and includes economic policy uncertainty,investor sentiment and stock market returns.,based on the perspective of behavioral finance,this paper explores whether there is a transmission path of investor sentiment in the impact of economic policy uncertainty on stock market returns through theoretical analysis and empirical tests,and further subdivides policy uncertainty.There are four categories,and the mediator effect test model is used to explore the differential impact of investor sentiment on the impact of different types of policy uncertainty on market returns.Stock market.Furthermore,according to the division method of Pagan and Sossounon(2003),the research sample interval is divided into bull market and bear market,and it is analyzed whether the correlation between the three is different under different market conditions.The study results show that moderate economic policy tightening is conducive to sustained stock market development,while excessive policy tightening will lead to a drop in stock market performance,and this adverse impact will be partially transmitted through of investor sentiment.Different types of political uncertainty have different effects on stock market returns.Among them,monetary policy uncertainty has the largest chilling effect on stock market returns,and the effect will be transmitted through investor sentiment.The second is the exchange rate policy,and the effect of the policy tightening will also be transmitted through investor sentiment.However,the impact of fiscal and trade policy uncertainty on the stock market is relatively small and the effect is not significant.Finally,economic policy uncertainty under different market conditions has asymmetric effects on stock returns.In a bear market,uncertainty has a significant impact on stock market returns,and economic policy adjustments will directly affect stock market returns.There is no mediating effect of emotion,but there is a mediating effect of investor sentiment in a bull market.