Does economic policy uncertainty impact the mean–variance relation? Evidence from China

This study shows the impact of economic policy uncertainty (EPU) on the mean–variance relation. Using the news-based EPU index of China, we discover the significant effect of EPU on the mean–variance relation of the Chinese stock market. Besides, our empirical findings reveal that the influence of EPU on the market's mean–variance relation is time-varying. During the low-EPU periods, the stock market's excess return is positively related to conditional variance; during the high-EPU periods, the stock market's excess return is negatively related to conditional variance. Furthermore, our results are robust across different conditional variance models as well as controlling for Fama–French three factors of the Chinese stock market.