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How do composite and categorical economic policy uncertainties affect the long-term correlation between China's stock and conventional/green bond markets?

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  • Guo, Yaoqi
  • Deng, Yiwen
  • Zhang, Hongwei

Abstract

Since China's financial market is characterized by an obvious "policy market", this research explores the impact of composite economic policy uncertainty (EPU) and categorical economic policy uncertainty indices (FPU, MPU, TPU and EXRPU) on Chinese stocks and conventional/green bonds based on the extended DCC-MIDAS model. The results show that the composite EPU index strengthens the long-term correlation between stocks and green bonds while weakening the stock-conventional bond correlation. In addition, the effects of FPU, MPU, TPU and EXRPU on long-term correlations are heterogeneous in terms of size, direction, and significance.

Suggested Citation

  • Guo, Yaoqi & Deng, Yiwen & Zhang, Hongwei, 2023. "How do composite and categorical economic policy uncertainties affect the long-term correlation between China's stock and conventional/green bond markets?," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323005202
    DOI: 10.1016/j.frl.2023.104148
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