Sector Volatility Spillover and Economic Policy Uncertainty: Evidence from China’s Stock Market

Following generalized variance decomposition, we identify the transmission structure of financial shock among ten sectors in China. Then, we examine whether economic policy uncertainty (EPU) affects it through GARCH-MIDAS regression. We find that consumer discretionary, industrials, and materials se...

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Main Authors: Xiaqing Su, Zhe Liu
Format: Article
Language:English
Published: MDPI AG 2021-06-01
Series:Mathematics
Subjects:
Online Access:https://www.mdpi.com/2227-7390/9/12/1411
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spelling doaj-cf006388921945ccae07d5796f472b812021-07-01T00:26:30ZengMDPI AGMathematics2227-73902021-06-0191411141110.3390/math9121411Sector Volatility Spillover and Economic Policy Uncertainty: Evidence from China’s Stock MarketXiaqing Su0Zhe Liu1School of Economics, Ocean University of China, Qingdao 266100, ChinaSchool of Economics, Ocean University of China, Qingdao 266100, ChinaFollowing generalized variance decomposition, we identify the transmission structure of financial shock among ten sectors in China. Then, we examine whether economic policy uncertainty (EPU) affects it through GARCH-MIDAS regression. We find that consumer discretionary, industrials, and materials sectors are systemically important industries during the sample period. Further research of dynamic analysis shows that each sector acts in a time-varying role in this structure. The results of the GARCH-MIDAS regression indicate that none of the selected EPU indexes has a significant long-term impact on the total volatility spillover of the inter-sector stock market in China. However, the EPUs do affect some sectors’ spillover indexes in the long run, and they are significantly heterogeneous. This paper can provide regulatory suggestions for policymakers and reasonable asset allocation and risk avoidance methods for investors.https://www.mdpi.com/2227-7390/9/12/1411financial risksector volatility spilloverdynamic structureeconomic policy uncertaintyGARCH-MIDAS
collection DOAJ
language English
format Article
sources DOAJ
author Xiaqing Su
Zhe Liu
spellingShingle Xiaqing Su
Zhe Liu
Sector Volatility Spillover and Economic Policy Uncertainty: Evidence from China’s Stock Market
Mathematics
financial risk
sector volatility spillover
dynamic structure
economic policy uncertainty
GARCH-MIDAS
author_facet Xiaqing Su
Zhe Liu
author_sort Xiaqing Su
title Sector Volatility Spillover and Economic Policy Uncertainty: Evidence from China’s Stock Market
title_short Sector Volatility Spillover and Economic Policy Uncertainty: Evidence from China’s Stock Market
title_full Sector Volatility Spillover and Economic Policy Uncertainty: Evidence from China’s Stock Market
title_fullStr Sector Volatility Spillover and Economic Policy Uncertainty: Evidence from China’s Stock Market
title_full_unstemmed Sector Volatility Spillover and Economic Policy Uncertainty: Evidence from China’s Stock Market
title_sort sector volatility spillover and economic policy uncertainty: evidence from china’s stock market
publisher MDPI AG
series Mathematics
issn 2227-7390
publishDate 2021-06-01
description Following generalized variance decomposition, we identify the transmission structure of financial shock among ten sectors in China. Then, we examine whether economic policy uncertainty (EPU) affects it through GARCH-MIDAS regression. We find that consumer discretionary, industrials, and materials sectors are systemically important industries during the sample period. Further research of dynamic analysis shows that each sector acts in a time-varying role in this structure. The results of the GARCH-MIDAS regression indicate that none of the selected EPU indexes has a significant long-term impact on the total volatility spillover of the inter-sector stock market in China. However, the EPUs do affect some sectors’ spillover indexes in the long run, and they are significantly heterogeneous. This paper can provide regulatory suggestions for policymakers and reasonable asset allocation and risk avoidance methods for investors.
topic financial risk
sector volatility spillover
dynamic structure
economic policy uncertainty
GARCH-MIDAS
url https://www.mdpi.com/2227-7390/9/12/1411
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