Oil price shocks, economic policy uncertainty and industry stock returns in China: Asymmetric effects with quantile regression

This paper investigates the impact of crude oil shocks and China's economic policy uncertainty on stock returns at different locations on the return distributions. Based on monthly data from 1995:1 to 2016:3, we address this issue by employing the quantile regression technique. This approach enables a more detailed investigation in different market circumstances, namely, bearish, normal and bullish markets. Empirical results indicate that the effects of oil price shocks and economic policy uncertainty are asymmetric and highly related to stock market conditions. Moreover, both the nexus of oil- and economic policy uncertainty-stock are changed at the onset of a crisis. Specially, rising oil prices have greater negative effects on stock returns when stock markets are bullish (extreme higher quantiles) before a crisis, whereas the effects are significantly positive under different market conditions after the onset of the crisis. Falling oil prices lower stock returns when stock markets are bullish and normal before the crisis, whereas lower stock returns under different market conditions except extreme bullish after the onset of the crisis. These findings might be related to the optimistic or pessimistic investor sentiments and investors might become more frightened after the crisis.