Economic policy uncertainty, investor sentiment, and stock market volatility in China: A Study based on the TVP-VAR-SV model

Yun, ZhangSoo-Wah L.O.W.Hoque, Mohammad EnamulShah Zaidi, Mohd Azlan2026-09-022026-09-022026-01-01Zhang Yun,LOW Soo-Wah,Mohammad Enamul HOQUE,Mohd Azlan SHAH ZAIDI. (2026). Economic Policy Uncertainty, Investor Sentiment, and Stock Market Volatility in China: A Study based on the TVP-VAR-SV Model. Global Business and Finance Review, 31(5), 51-64. 10.17549/gbfr.2026.31.5.51108869312-s2.0-105039211875https://hdl.handle.net/10361/29708Purpose: To effectively explain irrational fluctuations in the stock market, assist investors in managing risks more efficiently, and enhance the ability to identify potential risks. Design/methodology/approach: This paper explores the effects of global and Chinese economic policy uncertainty (EPU) and investor sentiment (IS) on China’s stock market using a Time-Varying Parameter Vector Autoregression model with stochastic volatility (TVP-VAR-SV) from 2003 to 2023. Findings: The results reveal that China’s stock market exhibits asymmetric, time-varying volatility, characterised by alternating positive and negative shifts, with a gradual decline in overall fluctuations. Due to differences in firm size, industry structure, and regional characteristics, the Shanghai market is more sensitive to IS, while the Shenzhen market responds more to Chinese and global EPU. IS has the most substantial short-term impact, whereas Chinese EPU, though less pronounced than global EPU, shows more persistent effects. IS and global EPU exert immediate positive influences on the stock market, while Chinese EPU is associated with an immediate adverse effect. Research limitations/implications: This study’s limitations lie in the need to employ more advanced approaches to measure IS from a broader perspective and integrate connectedness methodologies further to investigate the inter-sectoral spillover effects within China’s market. Originality/value: Incorporating EPU and IS provides a more comprehensive explanation of the price formation mechanism and helps uncover the underlying sources of market irrationality. © The Author(s).51 - 64en-UStrueChinese stock market volatilityEconomic policy uncertaintyInvestor sentimentTVP-VAR-SV modelStock exchanges--China.Stocks--Prices--China.Corporate profits--China--Forecasting.China--Economic policy.Economic policy uncertainty, investor sentiment, and stock market volatility in China: A Study based on the TVP-VAR-SV modelArticle10.17549/gbfr.2026.31.5.51