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Economic policy uncertainty and stock market volatility in China: Evidence from SV-MIDAS-t model

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  • Wang, Nianling
  • Yin, Jiyuan
  • Li, Yong

Abstract

This study combines the stochastic volatility (SV) model with a mixed data sampling (MIDAS) structure under t-distribution to investigate the effect of economic policy uncertainty (EPU) on Chinese stock market volatility. Furthermore, we compare eight volatility models regarding using “GARCH or SV” model, “with or without” the MIDAS structure, under “normal or t” distributions. The model comparison results show that SV-MIDAS-t model is the best in terms of data fitting, AIC, BIC, and various loss function criteria. Based on the SV-MIDAS-t model, we find that a rise in EPU index significantly increases the long-term component of volatility, and this impact has a time lag effect.

Suggested Citation

  • Wang, Nianling & Yin, Jiyuan & Li, Yong, 2024. "Economic policy uncertainty and stock market volatility in China: Evidence from SV-MIDAS-t model," International Review of Financial Analysis, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:finana:v:92:y:2024:i:c:s105752192400022x
    DOI: 10.1016/j.irfa.2024.103090
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    2. Huang, Xiaowei & He, Chenyu & Zhang, Man, 2024. "Economic policy uncertainty and capital flows' tail risk in China," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).

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