Journal article
Financial risk, uncertainty and expected returns: evidence from Chinese equity markets
China finance review international, v 9(4), pp 425-454
18 Nov 2019
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
Purpose
The purpose of this paper is to investigate the risk and economic policy uncertainty (EPU) shocks on China’s equity markets while controlling for changes in sentiments and liquidity.
Design/methodology/approach
The GED-TARCH(1,1)-M procedure is used in estimations to deal with the heteroscedasticity problem.
Findings
Evidence shows that stock returns are positively correlated with predictable volatility and lagged downside risk. This study indicates that the stock returns are negatively correlated with both local and global uncertainty innovations. The test results are robust across different measures of stock returns and model specifications. The global EPU innovations have more profound impact on stock returns than that of Chinese EPU.
Research limitations/implications
The findings are based on the data in the China’s stock market, other global markets may be considered in the future research.
Practical implications
Evidence indicates that a rise in EPU produces a negative effect on stock returns at the time news hits a market; however, investors will be rewarded by a premium as prices rebound in the subsequent period for compensating the investment decision made at a high uncertainty period.
Originality/value
The excess stock returns are negatively related to the EPU innovations, regardless of whether EPU originates from a domestic source or external sources.
Metrics
Details
- Title
- Financial risk, uncertainty and expected returns: evidence from Chinese equity markets
- Creators
- Thomas C Chiang
- Publication Details
- China finance review international, v 9(4), pp 425-454
- Publisher
- Emerald Publishing Limited
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Finance
- Web of Science ID
- WOS:000496536300001
- Scopus ID
- 2-s2.0-85069486380
- Other Identifier
- 991014878249904721
UN Sustainable Development Goals (SDGs)
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InCites Highlights
Data related to this publication, from InCites Benchmarking & Analytics tool:
- Web of Science research areas
- Business, Finance