Economic Policy Uncertainty, Investor Sentiment and Industry Stock Market Volatility in China: A Quantile Regression Approach

ABSTRACT From an industry perspective, we apply the quantile regression to investigate the impact of investor sentiment (IS) and China's/the US economic policy uncertainty (EPU) on Chinese stock market volatility. Considering the structural break of the stock market, we found that China's and the US EPU/IS and their interaction effects had a significant impact on China's stock market volatility at the market level. Moreover, there was an asymmetric dependence between China's and the US EPU/IS and stock market volatility, and the dependence structure was time‐varying. At the industry level, the impact of the EPU on industry stock market volatility was highly heterogeneous, and its significance mostly occurred in the upper and lower tails. China's and the US EPU/IS can exacerbate industry stock market volatility in bullish and bearish markets. In addition, China's and the US EPU/IS and their interaction effects are heterogeneous and asymmetric, and the effects change with the break point. Finally, the US EPU has a great impact on the industry stock market. However, its scope and degree of influence are gradually decreasing. Our findings shed new light on the relationship of the EPU, IS and stock market volatility in China.