Mixed frequency domain spillover effect of international economic policy uncertainty on stock market

Abstract

Purpose

The purpose of this paper is to construct a frequency-domain framework to study the asymmetric spillover effects of international economic policy uncertainty on China’s stock market industry indexes.

Design/methodology/approach

This paper follows the time domain spillover model, asymmetric spillover model and frequency domain spillover model, which not only studies the degree of spillover in time domain but also studies the persistence of spillover effect in frequency domain.

Findings

It is found that China’s economic policy uncertainty plays a dominant role in the spillover effect on the stock market, while the global and US economic policy uncertainty is relatively weak. By decomposing realized volatility into quantified asymmetric risks of “good” volatility and “bad” volatility, it is concluded that economic policy uncertainty has a greater impact on stock downside risk than upside risk. For different time periods, the sensitivity of long-term and short-term spillover economic policy impact is different. Among them, asymmetric high-frequency spillover in the stock market is more easily observed, which provides certain reference significance for the stability of the financial market.

Originality/value

The originality aims at extending the traditional research paradigm of “time domain” to the research perspective of “frequency domain.” This study uses the more advanced models to analyze various factors from the static and dynamic levels, with a view to obtain reliable and robust research conclusions.

Citation

Zhu, S., Wu, X., He, Z. and He, Y. (2022), "Mixed frequency domain spillover effect of international economic policy uncertainty on stock market", Kybernetes, Vol. 51 No. 2, pp. 876-895. https://doi.org/10.1108/K-11-2020-0755