Policy uncertainty and sectoral stock market volatility in China

Abstract This study examines the dynamic volatility connectedness between different types of policy uncertainty and sectoral stock markets in both the time and frequency domains in China. Using the time–frequency connectedness index approach, we find extremely high connectedness between policy uncertainty and Chinese sectoral stock markets mainly in the medium and long terms. In particular, uncertainty regarding monetary policies makes the weakest contribution to spillovers among the four policy uncertainties, while uncertainty regarding trade policies contributes prominently. The energy, financial, IT, telecommunication services and utilities sectors are the most vulnerable to policy uncertainties.