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Policy Uncertainty in China, Oil Shocks and Stock Returns


  • Wensheng Kang
  • Ronald A. Ratti


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.

Suggested Citation

  • Wensheng Kang & Ronald A. Ratti, 2014. "Policy Uncertainty in China, Oil Shocks and Stock Returns," CAMA Working Papers 2014-32, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2014-32

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    References listed on IDEAS

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    Cited by:

    1. repec:ipg:wpaper:2014-547 is not listed on IDEAS
    2. Mohamed Arouri & Christophe Rault & Frédéric Teulon, 2014. "Economic policy uncertainty, oil price shocks and GCC stock markets," Economics Bulletin, AccessEcon, vol. 34(3), pages 1822-1834.
    3. Mohamed Arouri & David Roubaud, 2016. "On the determinants of stock market dynamics in emerging countries: the role of economic policy uncertainty in China and India," Economics Bulletin, AccessEcon, vol. 36(2), pages 760-770.

    More about this item


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

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • P40 - Economic Systems - - Other Economic Systems - - - General
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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