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JACIII Vol.23 No.4 pp. 658-666
doi: 10.20965/jaciii.2019.p0658
(2019)

Paper:

Explaining Disparities in AH Stock Premium Returns with Chinese Economic Policy Uncertainty: Evidence Based on a Non-Parametric Analysis

Mohib Ur Rahman*, Bing Xu*, Yuan Xiao*, and Wen-Tsung Lai**

*Research Institute of Quantitative Economics, Zhejiang Gongshang University
18 Xuezheng Road, Xiasha University Town, Hangzhou, Zhejiang 310018, China

**Yu Da University of Science and Technology
No.168, Hsueh-fu Road, Tanwen Village, Chaochiao Township, Miaoli County 361, Taiwan

Received:
October 24, 2018
Accepted:
January 11, 2019
Published:
July 20, 2019
Keywords:
economic policy uncertainty, Hang Seng AH premium index, Shanghai-Hong Kong connect, stock market returns, non-parametric kernel density
Abstract

This paper empirically investigates the AH share premium puzzle considering the impact of economic policy uncertainty (EPU) in China, using Hang Seng AH premium (HSAHP) index data from March 2011 to June 2018. Specifically, the index of Baker, Bloom, and Davis is used as a proxy for EPU in China. The data has been divided into two periods: 0 and 1. Period 0 includes data before the launch of the stock connect program and spans from March 2011 to October 2014, while period 1 represents data from after the launch of stock connect program and spans from November 2014 to June 2018. To more robustly test the change in AH premiums after the “connect” is launched; we evaluate the impact of Chinese EPU using non-parametric kernel density estimation. The empirical results show that parameter uncertainty explains variations in price disparity and can significantly reduce the returns of the AH share premium index.

Cite this article as:
M. Rahman, B. Xu, Y. Xiao, and W. Lai, “Explaining Disparities in AH Stock Premium Returns with Chinese Economic Policy Uncertainty: Evidence Based on a Non-Parametric Analysis,” J. Adv. Comput. Intell. Intell. Inform., Vol.23, No.4, pp. 658-666, 2019.
Data files:
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Last updated on Nov. 18, 2019