The Stock Price Impact of Domestic and Foreign Economic Policy Uncertainty: Evidence from China

Utilizing the nonlinear autoregressive distributed lag (NARDL) approach (Shin, Yu, & Greenwood-Nimmo, 2014), we compare Chinese stock price responses to movements in U. S. and Chinese economic policy uncertainty (EPU). We find that Chinese stock prices react countercyclically to movements in U. S. uncertainty, but not Chinese uncertainty. They exhibit negative long- and short-run asymmetry (overshooting) in response to U.S. EPU shocks, but not Chinese EPU shocks, reflecting the importance of U. S. consumption to the performance of Chinese exporters.