Guojin Chen a, Runze Zhang b , Xiangqin Zhao c
Author information
a Department of Finance, School of Economics, Xiamen University, Xiamen 361005, China; Wang Yanan Institute for Studies in Economics, Xiamen University, Xiamen 361005, China
b Postdoctoral Workstation, Guosen Securities, Shenzhen 518001, China
c Department of Finance, School of Economics, Xiamen University, Xiamen 361005, China
E-mail: xqzhao@xmu.edu.cn (Xiangqin Zhao)
In this paper, we introduce economic policy uncertainty by using a stochastic discount model. Via parameter calibration and static analysis, we investigate the dynamic characteristics of stock risk on different policy uncertainty. On this basis, we test the channel through policy uncertainty affects stock risk by empirical simulation, and the effect of policy uncertainty on stock risk formation by portfolio analysis, in order to verify the applicability of the theoretical model in China. Finally, the panel model is used to quantitatively analyze the relationship between policy uncertainty and stock risk. The results show that policy uncertainty can inereuse stock risk through enterprise cash flow, discounting factors and correlation coefficient. The effect is still significant after controlling traditional risk factors, corporate heterogeneity, and external environmental factors. Companies that are non-state-owned, have lower returns on invested capital and lower asset growth rate manifest greater stock risk when policy uncertainty is higher. The magnitude of the effect of policy uncertainty on stock risk is larger when the economy is weaker and the policy environment is more unstable.
economic policy uncertainty (EPU), stock risk, transmission mechanism, panel regression
Guojin Chen, Runze Zhang, Xiangqin Zhao. Economic Policy Uncertainty and Stock Risk Features. Front. Econ. China, 2019, 14(3): 461‒495 https://doi.org/10.3868/s060-008-019-0020-4