Measuring Economic Uncertainty in China

Emerging Markets Finance and Trade, forthcoming

61 Pages Posted: 29 Aug 2019 Last revised: 6 Jan 2021

See all articles by Wei-Fong Pan

Wei-Fong Pan

Department of Economics, University of Reading

Xinjie Wang

Southern University of Science and Technology

Shixuan Wang

University of Reading - Department of Economics

Date Written: August 24, 2019

Abstract

This study develops a new economic uncertainty (EU) index based on Chinese newspapers to address the media coverage bias of existing measures. We investigate how EU affects China’s macroeconomy. Our results suggest that EU reduces aggregate output. We find that uncertainty predicts fluctuations in economic activity and actual economic activity also predicts EU, but nonlinearly. Furthermore, we show that uncertainty in the United States leads to uncertainty in China, implying that negative EU on the Chinese economy is coming from the U.S. Finally, we conduct some asset pricing tests, showing that EU can predict stock returns and commands risk premium. Our results are helpful for both researchers and policymakers to stabilize the economy and financial markets in China.

Keywords: economic uncertainty, China, newspaper, Granger causality, nonlinear causality

JEL Classification: C22, D80, E32, E66

Suggested Citation

Pan, Wei-Fong and Wang, Xinjie and Wang, Shixuan, Measuring Economic Uncertainty in China (August 24, 2019). Emerging Markets Finance and Trade, forthcoming, Available at SSRN: https://ssrn.com/abstract=3442730 or http://dx.doi.org/10.2139/ssrn.3442730

Wei-Fong Pan (Contact Author)

Department of Economics, University of Reading ( email )

Whiteknights
Reading, Berkshire RG6 6AH
United Kingdom

Xinjie Wang

Southern University of Science and Technology ( email )

1088 Xueyuan Blvd
Xili, Nanshan District
Shenzhen, Guangdong 518055
China

Shixuan Wang

University of Reading - Department of Economics ( email )

Reading, RG6 6AA
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
83
Abstract Views
549
rank
345,476
PlumX Metrics