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Impact of US Uncertainty on Chinese Stock Market Volatility

Author

Listed:
  • Renhai Hua
  • Pengfei Zhao
  • Honghai Yu
  • Libing Fang

Abstract

The process of opening the Chinese stock market has sped up in the last two decades. This paper investigates the effects of the uncertainty in the US measured by news-implied volatility on the Chinese stock market volatility. Our empirical results for the full sample period (1997–2016) reveal that there is no clear effect of US uncertainty on fluctuations in China’s stock market. However, based on the subsample analysis along the opening progress in the Chinese stock market, we observe that US uncertainty had a significant effect on Chinese stock market volatility after Qualified Foreign Institutional Investors (QFII) and Renminbi QFII were allowed to invest in the Chinese stock market. The results are the same after the global financial crisis. Our results imply that the US uncertainty should be considered by investors deciding on investment strategy. The government should also consider the US uncertainty when enacting the policy on opening policy the Chinese stock market.

Suggested Citation

  • Renhai Hua & Pengfei Zhao & Honghai Yu & Libing Fang, 2020. "Impact of US Uncertainty on Chinese Stock Market Volatility," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(3), pages 576-592, February.
    • Handle: RePEc:mes:emfitr:v:56:y:2020:i:3:p:576-592
    DOI: 10.1080/1540496X.2018.1519413
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    Cited by:

    1. Dai, Zhifeng & Zhu, Haoyang, 2023. "Dynamic risk spillover among crude oil, economic policy uncertainty and Chinese financial sectors," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 421-450.
    2. He, Lerong & Huang, Liying & Fang, Liting, 2022. "Institutional conditions, economic policy uncertainty and foreign institutional investment in China," Emerging Markets Review, Elsevier, vol. 50(C).
    3. Guan, Jialin & Xu, Huijuan & Huo, Da & Hua, Yechun & Wang, Yunfeng, 2021. "Economic policy uncertainty and corporate innovation: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    4. Si, Deng-Kui & Zhao, Bing & Li, Xiao-Lin & Ding, Hui, 2021. "Policy uncertainty and sectoral stock market volatility in China," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 557-573.

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