Policy Uncertainty in China, Oil Shocks and Stock Returns

33 Pages Posted: 11 Apr 2014 Last revised: 14 Apr 2014

See all articles by Wensheng Kang

Wensheng Kang

Ronald A. Ratti

Western Sydney University - Department of Economics & Finance

Date Written: April 1, 2014

Abstract

This paper examines the interdependence of China’s policy uncertainty, the global oil market, and stock market returns in China. A structural VAR model is estimated that shows a positive shock to economic policy uncertainty in China has a delayed negative effect on global oil production, real oil prices and real stock market returns. Shocks to oil market specific demand significantly raise China’s economic policy uncertainty and reduce the real stock market returns. As measured by a spillover index the interdependence between these variables is rising since 2003 as China’s influence in the oil market increases. An equivalent spillover index calculated for the U.S. is smaller and largely flat over time.

Keywords: China’s policy uncertainty, China’s stock market return, Oil shocks, Structural VAR

JEL Classification: E44, G15, P40, Q43

Suggested Citation

Kang, Wensheng and Ratti, Ronald A., Policy Uncertainty in China, Oil Shocks and Stock Returns (April 1, 2014). CAMA Working Paper No. 32/2014, Available at SSRN: https://ssrn.com/abstract=2423165 or http://dx.doi.org/10.2139/ssrn.2423165

Ronald A. Ratti (Contact Author)

Western Sydney University - Department of Economics & Finance ( email )

Sydney, NSW 1797
Australia

No contact information is available for Wensheng Kang

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