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The Asset Pricing Implications of Ambiguous Central Bank Communication: Evidence from China

Author

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  • Jianhao Lin
  • Yifan Zhang
  • Liangyuan Chen
  • Xianbo Zhou

Abstract

This paper investigates the premium of ambiguous central bank communication with diversified policy stances on the cross-sectional asset prices. Distinguishing different inclinations (dovish, neutral and hawkish) in the communications of the People’s Bank of China (PBC) governors through a field-specific lexicon approach, we construct the ambiguous communication index (ACI) based on the textual methodology. We find that ambiguous communication makes it difficult to predict policy stance and increases policy uncertainty, thus the ACI earns a significant negative premium in the cross-section of asset pricing. This paper contributes to the literature on policy uncertainty by proposing a new supplementary perspective, a feasible measure and empirical evidence of ambiguous communication. Furthermore, this contribution extends to the literature on policy communication by distinguishing the statistically and economically significant premium linked to ambiguous communication.

Suggested Citation

  • Jianhao Lin & Yifan Zhang & Liangyuan Chen & Xianbo Zhou, 2024. "The Asset Pricing Implications of Ambiguous Central Bank Communication: Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 60(10), pages 2204-2219, August.
    • Handle: RePEc:mes:emfitr:v:60:y:2024:i:10:p:2204-2219
    DOI: 10.1080/1540496X.2024.2310031
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