Chinese Economic Policy Uncertainty and the Cross-Section of U.S. Asset Returns

Kiryoung Lee, Yoontae Jeon, Eun Young Nam

Research output: Contribution to journalArticlepeer-review

11 Scopus citations

Abstract

We find that Chinese EPU shocks can explain 40% of the cross-sectional variation in bond returns. We also find that Chinese EPU shocks command a significant negative risk premia. In contrast to a strong explanatory power for bond markets, we do not find meaningful pricing power of Chinese EPU for equity markets. We argue and provide supporting empirical evidence that this result is attributable to the fact that Chinese EPU has a strong influence on the U.S. economy mainly during recessions. Overall, our findings suggest that a foreign EPU shock could be a potentially important factor in explaining bond returns.

Original languageEnglish
Pages (from-to)1063-1077
Number of pages15
JournalInternational Review of Economics and Finance
Volume76
DOIs
StatePublished - Nov 2021

Keywords

  • Chinese economic policy uncertainty
  • Cross-section of bond returns
  • Global economy
  • ICAPM
  • VIX

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