Economic policy uncertainty, carbon risk and China's stock market

This paper selects the monthly data on economic policy uncertainty index, carbon index and stock index from January 2011 to July 2023 as samples, and uses TVP-SV-VAR model to explore the relationship between carbon risk and the time varying characteristics of China's stock market under the condition of economic policy uncertainty. The article finds that: (1) under the uncertainty of economic policy, the relationship between carbon risk and stock market has time varying characteristics, and shows a positive correlation; (2) Economic policy uncertainty provides an additional channel for carbon risk shocks to be transmitted to the stock market; (3) Under the uncertainty of economic policy, the impact response of stock market returns to carbon risk in various industries is heterogeneous, especially in the energy industry. Based on the above conclusions, in order to effectively prevent risks, while formulating relevant economic policies, the government should try to ensure the continuity of economic policies and avoid the impact of carbon risks on the stock market; Enterprises should speed up the tackling of key core technologies of low-carbon, zero carbon and negative carbon, and promote the low-carbon transformation of high energy consuming industries.