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Economic policy uncertainty, COVID-19 lockdown, and firm-level volatility: Evidence from China

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  • Yang, Jianlei
  • Yang, Chunpeng

Abstract

To explain how firm-level volatility responds to the COVID-19 pandemic shock through the economic policy uncertainty (EPU) channel, we examine the two-dimension variations of stock volatility under the impact of COVID-19 pandemic and two types of EPU: measured by comprehensive newspapers news and financial newspapers news. The results, based on a difference in difference (DID) estimation, suggest a significant additional increase in the volatility of stocks with a higher degree of sensitivity to EPU after the announcement of the COVID-19 pandemic lockdown. Moreover, this effect is most pronounced for consumer, less-profitable, and high leverage stocks. Further multi-period analyses indicate that the impact of EPU associated with pandemic takes effect at the time of lockdown announcement and persist for a short-term trend.

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  • Yang, Jianlei & Yang, Chunpeng, 2021. "Economic policy uncertainty, COVID-19 lockdown, and firm-level volatility: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:pacfin:v:68:y:2021:i:c:s0927538x21001049
    DOI: 10.1016/j.pacfin.2021.101597
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    6. Wang, Kai-Hua & Zhao, Yan-Xin & Su, Yun Hsuan & Lobonţ, Oana-Ramona, 2023. "Energy security and CO2 emissions: New evidence from time-varying and quantile-varying aspects," Energy, Elsevier, vol. 273(C).
    7. Klayme, Tania & Gokmenoglu, Korhan K. & Rustamov, Bezhan, 2023. "Economic policy uncertainty, COVID-19 and corporate investment: Evidence from the gold mining industry," Resources Policy, Elsevier, vol. 85(PA).
    8. Qiuyun Wang & Lu Liu, 2022. "Pandemic or panic? A firm-level study on the psychological and industrial impacts of COVID-19 on the Chinese stock market," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-38, December.
    9. Deev, Oleg & Plíhal, Tomáš, 2022. "How to calm down the markets? The effects of COVID-19 economic policy responses on financial market uncertainty," Research in International Business and Finance, Elsevier, vol. 60(C).
    10. Cao, Yuqiang & Li, Chenglin & Liu, Xinghe & Lu, Meiting & Shan, Yaowen, 2022. "Economic policy uncertainty and debt allocation within business groups," Economic Modelling, Elsevier, vol. 116(C).
    11. C. Biliotti & F. J. Bargagli-Stoffi & N. Fraccaroli & M. Puliga & M. Riccaboni, 2022. "Breaking Down the Lockdown: The Causal Effects of Stay-At-Home Mandates on Uncertainty and Sentiments During the COVID-19 Pandemic," Papers 2212.01705, arXiv.org, revised Jun 2023.
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