Research on the Impact of Economic Policy Uncertainty on China's Stock Market Returns

Abstract

The development of China's securities market has been relatively short, and the stock market has been developed from scratch, and the relevant market system and theory are not mature enough, gradually showing the characteristics of "policy market". In order to achieve different macroeconomic goals at different stages of economic development, the government constantly adjusts the direction and intensity of the implementation of macroeconomic policy tools in a timely manner. Frequent adjustments in economic policies are bound to affect the development of capital markets. Especially since 2015, the supply-side reform, the Sino-US trade war, the establishment of the science and technology innovation board, the new crown epidemic and other internal and external factors overlapping makes China's economic policy uncertainty index fluctuates sharply, which will certainly have an impact on the stock market. In this paper, monthly data from 2010 to 2022 are used as the study interval, and the SSE and SZSE indices are selected as the samples to study the relationship between them and the Shanghai and Shenzhen market returns using the economic policy uncertainty index developed by Baker et al. It is found that in the short run, economic policy uncertainty causes drastic negative feedback in the stock market; in the long run, the impact of economic policy uncertainty on the stock market gradually tends to level off after investors return to rationality. By market segment, economic policy uncertainty hit the small-cap segment more sharply, and equity market yields were more volatile.