The Impacts of Climate Policy Uncertainty on Return, Volatility, Correlation and Tail Dependence of China's and Us Stock Markets

41 Pages Posted: 10 May 2022

See all articles by Xin Xu

Xin Xu

China University of Geosciences (CUG) - School of Economics and Management

Shupei Huang

China University of Geosciences (CUG)

Brian M. Lucey

Trinity Business School, Trinity College Dublin; Abu Dhabi University - College of Business Administration; Shanghai Lixin Univeristy of Accounting and Finance

An Haizhong

China University of Geosciences, Beijing

Date Written: May 6, 2022

Abstract

This paper measures China’s daily and monthly climate policy uncertainty (CPU) from Jan 2000 to Mar 2022 based on Chinese news data for the first time. Then, the nonlinear and lag impacts of the US CPU and China’s CPU on the return, volatility, correlation and tail dependence of China’s and US stock markets are investigated and compared by adopting GARCH (1,1), copula function and the distribution lag nonlinear model (DLNM). The data of stock markets includes the Shanghai Composite Index (SSCI) and NASDAQ from Jan 2000 to Mar 2022 from the Choice database, and the Shenzhen Composite Index (SCI) and S&P 500 are used for robustness test. The empirical results indicate that (1) the growth trend of China’s CPU index is similar to that of the US. However, there are significant differences between the impacts of these two CPUs on stock markets. (2) For China, high CPU decreases current stock market return and increases volatility but decreases it in the future. It could also increase the upper tail dependence between China’s and the US stock markets’ volatilities in current period. (3) For the US, CPU decreases stock market return in the short term but increases it in the long term. High CPU increases volatility in short term, decreases volatility in 5 months and increases it again after 6 months. Both low and high CPU could increase the correlation between China’s and US stock markets’ volatilities.

Keywords: Climate policy uncertainty; Stock market volatility; Distribution lag nonlinear model; Upper tail dependence; Nonlinear and lag effects

Suggested Citation

Xu, Xin and Huang, Shupei and Lucey, Brian M. and Haizhong, An, The Impacts of Climate Policy Uncertainty on Return, Volatility, Correlation and Tail Dependence of China's and Us Stock Markets (May 6, 2022). Available at SSRN: https://ssrn.com/abstract=4101828 or http://dx.doi.org/10.2139/ssrn.4101828

Xin Xu

China University of Geosciences (CUG) - School of Economics and Management ( email )

Wuhan
China

Shupei Huang

China University of Geosciences (CUG) ( email )

Wuhan, China
Wuhan, Hubei
China

Brian M. Lucey (Contact Author)

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
+353 1 608 1552 (Phone)
+353 1 679 9503 (Fax)

Abu Dhabi University - College of Business Administration ( email )

PO Box 59911
Abu Dhabi, Abu Dhabi 59911
United Arab Emirates

Shanghai Lixin Univeristy of Accounting and Finance ( email )

Shanghai
China

An Haizhong

China University of Geosciences, Beijing ( email )

NO. 29, Xueyuan Road, Haidian District
Beijing, 100083
China

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