Asymmetric volatility spillovers between economic policy uncertainty and stock markets: Evidence from China

Wang, Ziwei; Li, Youwei; He, Feng

Abstract

This study explores the spillovers between economic policy uncertainty (EPU) and stock market realized volatility (RV). The monthly index of Chinese and US EPU and RV are used to analyze the pairwise directional spillovers. We find that RV is a net receiver that is more vulnerable to shocks from U.S. EPU than to shocks from Chinese EPU. We further decompose the RV into good and bad volatility to test the asymmetric spillover effect between the stock market and EPU. The results suggest that EPU has a bigger effect on bad volatility in the stock market throughout most of the sample period. However, we find that good volatility spillovers become larger during periods of stimulated reform, whereas bad volatility spillovers become larger during periods of international disputes. We show that Chinese stock market volatility is sensitive to both U.S. and Chinese EPU and that the spillover is asymmetric in different periods.

Citation

Wang, Z., Li, Y., & He, F. (2020). Asymmetric volatility spillovers between economic policy uncertainty and stock markets: Evidence from China. Research in international business and finance, 53, Article 101233. https://doi.org/10.1016/j.ribaf.2020.101233

• Journal Article Type: Article
• Acceptance Date: Mar 31, 2020
• Online Publication Date: Apr 8, 2020
• Publication Date: 2020-10
• Deposit Date: Apr 9, 2020
• Publicly Available Date: Oct 9, 2021
• Journal: Research in International Business and Finance
• Print ISSN: 0275-5319
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 53
• Article Number: 101233
• DOI: https://doi.org/10.1016/j.ribaf.2020.101233
• Keywords: Economic policy uncertainty; Realized volatility; Asymmetry spillover; Good and bad volatility
• Public URL: https://hull-repository.worktribe.com/output/3494912
• Publisher URL: https://www.sciencedirect.com/science/article/abs/pii/S0275531919309419?via%3Dihub