Forecasting Chinese stock market volatility under uncertainty

Abstract

As the trend of world economic integration intensifies, global uncertainty also has a certain impact on the stock markets of various countries. To explore the volatility of China's stock market under uncertainty, we use a mixed-frequency data model and introduce uncertainty variables, namely the Global Economic Policy Uncertainty Index (GEPU), the United States (US EPU) and China (Chia EPU) economic policy uncertainty indices, the implied volatility index (VIX) and the geopolitical risk index (GPR), to build an extended GARCH- MIDAS model to analyse the impact of uncertainty indices on Chinese stock market volatility. The empirical results show that, except for the US EPU index, all other uncertainty indices have some impact on the Chinese stock market, and the out-of-sample forecasting results indicate that the introduction of these variables improves the forecasting effect of the model, with China's economic policy uncertainty index showing significant advantages in forecasting both weekly and monthly volatilities.