How Do Stock Markets in China and Japan Respond to Economic Policy Uncertainty in the United States?

This study examines the response of stock markets in China and Japan to the changes in economic policy uncertainty in the United States. The analysis of data of monthly changes in economic policy uncertainty in the US and monthly returns on Shanghai Composite Index from 1991:1 to 2012:5 and Nikkei 225 Index from 1985:2 to 2012:5 shows that changes in economic policy uncertainty in the US negatively affect the returns on the Nikkei 225 Index. Although, the Shanghai Composite index is negatively affected by the changes in economic policy uncertainty in the US, the effect is not statistically significant. The finding suggests that stock market performance in Japan is significantly linked to the economic policy conditions in the US; however, the link is not significant for the case of China