Is U.S. Economic Policy Uncertainty Priced in China's A-Shares Market? Evidence from Market, Industry, and Individual Stocks

33 Pages Posted: 16 Feb 2018

See all articles by Hu Zhijun

Hu Zhijun

Jiangxi University of Finance and Economics - School of Finance

Ali M. Kutan

Southern Illinois University at Edwardsville

Ping-Wen Sun

Minjiang University - Newhuadu Business School

Date Written: December 1, 2017

Abstract

Motivated by Bali et al. (2016) who find U.S. economic policy uncertainty (EPU) is priced in the cross-section of U.S. stock returns, we use weekly data from March 2006 to April 2016 to study whether shocks in U.S. EPU also influence prices of China's A-shares from market, industry, and individual stock perspectives. Generally, after controlling business conditions in China, we find the shock in U.S. EPU significantly and negatively explains returns of China's A-shares with a lag. In addition, the market index containing small and growth stocks react more significantly to the shock than the index containing big and value stocks. Furthermore, we find firms in manufacturing, information technology, and media industries in China are more sensitive to the shock in U.S. EPU, while firms in agriculture and real estate industries in China correspond less to the shock in U.S. EPU. Finally, China's A-shares which decline more in response to the shock in U.S. EPU have higher stock returns and those stocks have smaller size, weaker operating profitability, higher asset growth, and better past year's cumulative return. Overall, our findings show that investors of China's A-shares require a premium to hold stocks sensitive to the shock in U.S. EPU.

Keywords: economic policy uncertainty; stock returns; A-shares; China; U.S.

JEL Classification: E32, G12, G15

Suggested Citation

Zhijun, Hu and Kutan, Ali M. and Sun, Ping-Wen, Is U.S. Economic Policy Uncertainty Priced in China's A-Shares Market? Evidence from Market, Industry, and Individual Stocks (December 1, 2017). Available at SSRN: https://ssrn.com/abstract=3118168 or http://dx.doi.org/10.2139/ssrn.3118168

Hu Zhijun

Jiangxi University of Finance and Economics - School of Finance ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

Ali M. Kutan

Southern Illinois University at Edwardsville ( email )

Department of Economics and Finance AH-3141
Edwardsville, IL 62026-1102
United States
618-650-3473 (Phone)
618-650-3047 (Fax)

HOME PAGE: http://https://ideas.repec.org/e/pku30.html

Ping-Wen Sun (Contact Author)

Minjiang University - Newhuadu Business School ( email )

Fujian
China

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