The Impacts of Climate Policy Uncertainty on Stock Markets: Comparison between China and the Us

42 Pages Posted: 15 Feb 2023

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)

An Haizhong

China University of Geosciences, Beijing

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 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 the 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 Haizhong, An, The Impacts of Climate Policy Uncertainty on Stock Markets: Comparison between China and the Us. Available at SSRN: https://ssrn.com/abstract=4359996 or http://dx.doi.org/10.2139/ssrn.4359996

Xin Xu

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

Wuhan
China

Shupei Huang (Contact Author)

China University of Geosciences (CUG) ( email )

Wuhan, China
Wuhan, Hubei
China

An Haizhong

China University of Geosciences, Beijing ( email )

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

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