Chinese Stock Returns and the Role of News-Based Uncertainty

ABSTRACT

Academic research relies extensively on fundamentals to forecast stock returns, with relatively little attention paid to the news channel. To fill this gap, we use the NVIX as a proxy for news-based uncertainty, to investigate its predictive power for Chinese stock returns wavelet analysis and prediction framework. We find that the long-term NVIX statistically and economically predicts Chinese stock returns in an in-sample and out-of-sample analysis, while the short-term NVIX almost has no predictability. In addition, we confirm the links between the long-term NVIX and the US and Chinese real economy, which might be why the long-term NVIX has good predictability for Chinese stock returns.

KEY WORDS:

• Chinese stock returns
• news-based uncertainty
• NVIX
• prediction
• wavelet analysis

Additional information

Funding

This work is financially supported by the National Natural Science Foundation of China [71671193? 71473279], and the Program for Innovation Research in the Central University of Finance and Economics.