A Study on the Relationship between Economic Policy Uncertainty and Stock Volatility

Abstract

As an important part of economic operation, financial market has been playing an indispensable role, whether positive or strong negative impediment. If the financial market runs steadily, it will undoubtedly benefit the good operation of the economy, but the transition fluctuation of the financial market will easily lead to major difficulties in economic development. Therefore, the government has been committed to adopt different policy measures to regulate the healthy development of the economy and even the financial market, but the frequent introduction of policies will inevitably lead to policy uncertainty, which itself will lead to financial market volatility to a certain extent. Taking stock market as the representative of financial market, this paper studies the correlation between China’s economic policy uncertainty and China’s stock market. Using monthly data from 1995 to 2019, so as to trigger in-depth thinking，this paper mainly uses VAR model to explore whether there is a structural mutation in the relationship between the two, and to find out the reasons behind the mutation.