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Policy Uncertainty in China, Oil Shocks and Stock Returns

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  • Wensheng Kang
  • Ronald A. Ratti

Abstract

This paper examines the interdependence of China’s policy uncertainty, the global oil market, and stock market returns in China. A structural VAR model is estimated that shows a positive shock to economic policy uncertainty in China has a delayed negative effect on global oil production, real oil prices and real stock market returns. Shocks to oil market specific demand significantly raise China’s economic policy uncertainty and reduce the real stock market returns. As measured by a spillover index the interdependence between these variables is rising since 2003 as China’s influence in the oil market increases. An equivalent spillover index calculated for the U.S. is smaller and largely flat over time.

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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2014-32.

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Length: 33 pages
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:een:camaaa:2014-32

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Keywords: China’s policy uncertainty; China’s stock market return; Oil shocks; Structural VAR;

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References

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  1. Aloui, Chaker & Nguyen, Duc Khuong & Njeh, Hassen, 2012. "Assessing the impacts of oil price fluctuations on stock returns in emerging markets," Economic Modelling, Elsevier, Elsevier, vol. 29(6), pages 2686-2695.
  2. Zhang, Chuanguo & Chen, Xiaoqing, 2011. "The impact of global oil price shocks on China’s stock returns: Evidence from the ARJI(-ht)-EGARCH model," Energy, Elsevier, Elsevier, vol. 36(11), pages 6627-6633.
  3. Kang, Wensheng & Ratti, Ronald A., 2013. "Structural oil price shocks and policy uncertainty," MPRA Paper 49007, University Library of Munich, Germany.
  4. Tang, Weiqi & Wu, Libo & Zhang, ZhongXiang, 2009. "Oil price shocks and their short- and long-term effects on the Chinese economy," MPRA Paper 14703, University Library of Munich, Germany.
  5. David C Broadstock & Hong Cao & Dayong Zhang, 2012. "Oil Shocks and their Impact on Energy Related Stocks in China," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS), Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey 137, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  6. Ying Fan & Jian-Ling Jiao & Qiao-Mei Liang & Zhi-Yong Han & Yi-Ming Wei, 2007. "The impact of rising international crude oil price on China's economy: an empirical analysis with CGE model," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, Inderscience Enterprises Ltd, vol. 27(4), pages 404-424.
  7. Beirne, John & Beulen, Christian & Liu, Guy & Mirzaei, Ali, 2013. "Global oil prices and the impact of China," China Economic Review, Elsevier, Elsevier, vol. 27(C), pages 37-51.
  8. Antonakakis, Nikolaos & Chatziantoniou, Ioannis & Filis, George, 2013. "Dynamic co-movements of stock market returns, implied volatility and policy uncertainty," Economics Letters, Elsevier, Elsevier, vol. 120(1), pages 87-92.
  9. Filis, George & Degiannakis, Stavros & Floros, Christos, 2011. "Dynamic correlation between stock market and oil prices: The case of oil-importing and oil-exporting countries," International Review of Financial Analysis, Elsevier, Elsevier, vol. 20(3), pages 152-164, June.
  10. Kilian, Lutz & Park, Cheolbeom, 2007. "The Impact of Oil Price Shocks on the U.S. Stock Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6166, C.E.P.R. Discussion Papers.
  11. Xiao-lin Li & Mehmet Balcilar & Rangan Gupta & Tsangyao Chang, 2013. "The Causal Relationship between Economic Policy Uncertainty and Stock Returns in China and India: Evidence from a Bootstrap Rolling-Window Approach," Working Papers, University of Pretoria, Department of Economics 201345, University of Pretoria, Department of Economics.
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Cited by:
  1. Mohamed Arouri & Christophe Rault & Frederic Teulon, 2014. "Economic policy uncertainty, oil price shocks and GCC stock markets," Working Papers, Department of Research, Ipag Business School 2014-547, Department of Research, Ipag Business School.

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