The impact of economic policy uncertainty on volatility of China’s financial stocks: An empirical analysis

Abstract

We modify the GARCH-MIDAS model by introducing a skewed T-distribution and employ it to study the impact of economic policy uncertainties on the volatility of China’s financial stocks between 2000–2019. The modified model improves the fit to the data compared to the standard model with a Gaussian distribution. We find that economic policy uncertainties worldwide and in the European Union, Japan, Russia, Brazil, Canada, and China are negatively correlated with the long-term component of volatility of China’s financial stocks. The heightened uncertainty in the US economic policy since 2017 has had a negative impact on the volatility of China’s financial stocks.