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Economic policy uncertainty dispersion and excess returns: Evidence from China

Author

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  • Yang, Jianlei
  • Yang, Chunpeng
  • Hu, Xiaoyi

Abstract

Using the daily economic policy uncertainty (EPU) index of Huang and Luk (2020), we construct an economic policy uncertainty dispersion (EPUD) index and further examine its impact on portfolio excess returns in the Chinese stock markets over the period 2000-2019. Our empirical findings reveal that the EPUD index positively predicts subsequent portfolio excess returns. This effect remains significant as we control for realized volatility, turnover ratio and a variety of macro-economic variables. Besides, we show that the impact of EPUD is stronger in small-stock portfolios.

Suggested Citation

  • Yang, Jianlei & Yang, Chunpeng & Hu, Xiaoyi, 2021. "Economic policy uncertainty dispersion and excess returns: Evidence from China," Finance Research Letters, Elsevier, vol. 40(C).
    • Handle: RePEc:eee:finlet:v:40:y:2021:i:c:s1544612320307820
    DOI: 10.1016/j.frl.2020.101714
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    References listed on IDEAS

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    1. Huang, Yun & Luk, Paul, 2020. "Measuring economic policy uncertainty in China," China Economic Review, Elsevier, vol. 59(C).
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    4. Lubos Pástor & Pietro Veronesi, 2012. "Uncertainty about Government Policy and Stock Prices," Journal of Finance, American Finance Association, vol. 67(4), pages 1219-1264, August.
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    7. Arouri, Mohamed & Estay, Christophe & Rault, Christophe & Roubaud, David, 2016. "Economic policy uncertainty and stock markets: Long-run evidence from the US," Finance Research Letters, Elsevier, vol. 18(C), pages 136-141.
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    Cited by:

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    2. Ahmad, Wasim & Kutan, Ali M. & Chahal, Rishman Jot Kaur & Kattumuri, Ruth, 2021. "COVID-19 Pandemic and firm-level dynamics in the USA, UK, Europe, and Japan," International Review of Financial Analysis, Elsevier, vol. 78(C).

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    More about this item

    Keywords

    Economic policy uncertainty; Economic policy uncertainty dispersion; Excess returns; Chinese stock markets;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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