Abstract

https://ssrn.com/abstract=2808862
 


 



Economic Policy Uncertainty in China and Stock Market Expected Returns


Jian Chen


Xiamen University - School of Economics

Fuwei Jiang


Central University of Finance and Economics (CUFE) - School of Finance

Guoshi Tong


Renmin University

July 12, 2016


Abstract:     
We investigate the impact of China’s economic policy uncertainty (EPU) on the time series variation of Chinese stock market expected returns. Using the news based measure in Baker, Bloom, and Davis (2016), we find that EPU predicts negatively future stock market return at various horizons. This negative relation between economic policy uncertainty and expected future return remains significant as we control for a number of economic and market uncertainty variables or conduct out-of-sample tests. Our findings are consistent with asset pricing theories with belief dispersion, in which high uncertainty or investors disagreement generates speculative mispricing when pessimistic investors face short-sales constraints.

Number of Pages in PDF File: 33

Keywords: Return Predictability, Economic Policy Uncertainty, Out-of-sample Forecasting, Asset Allocation, Chinese Stock Market

JEL Classification: C22, C53, G11, G12, G17


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Date posted: July 13, 2016  

Suggested Citation

Chen, Jian and Jiang, Fuwei and Tong, Guoshi, Economic Policy Uncertainty in China and Stock Market Expected Returns (July 12, 2016). Available at SSRN: https://ssrn.com/abstract=2808862 or http://dx.doi.org/10.2139/ssrn.2808862

Contact Information

Jian Chen (Contact Author)
Xiamen University - School of Economics ( email )
422 Siming Nan Road
Xiamen, Fujian 361005
China
Fuwei Jiang
Central University of Finance and Economics (CUFE) - School of Finance ( email )
39 South College Road
Haidian District
Beijing, 100081
China
Guoshi Tong
Renmin University ( email )
59 Zhongguancun Street
Beijing, 100872
China
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