The Impact of Policy Uncertainty, Liquidity, and Firm Size on Stock Price Volatility: An Empirical Study Based on Chinese A-share Listed Companies

Zheng Jiahua

Lanzhou University

Abstract：

This paper takes 20 representative A-share listed companies in China from 2008 to 2023 as the research sample, constructs an unbalanced panel dataset, and aims to explore the combined impact of macroeconomic policy uncertainty (EPU), stock liquidity, firm size, and overall market volatility on individual stock price volatility. The study employs a firm fixed effects model and sequentially conducts descriptive statistics, correlation analysis, benchmark regression, heterogeneity tests, and robustness checks. The empirical results indicate that: the impact of policy uncertainty (EPU) and its one-period lag on stock price volatility is statistically insignificant; stock turnover has a significant positive driving effect on stock price volatility; and firm size has a significant negative suppressing effect on stock price volatility. Heterogeneity tests reveal that the weak effect of EPU varies among firms of different sizes, liquidity levels, and across different policy periods. Multiple robustness checks support the reliability of the core findings. This study reveals that during a specific stage of China's capital market development, stock price volatility is primarily driven by firm-specific micro-characteristics and market trading behaviors, while the direct impact of macro policy uncertainty is limited. This provides new empirical evidence for understanding the volatility characteristics and policy transmission mechanisms in emerging markets.

Key Words：

stock price volatility; Economic Policy Uncertainty (EPU); turnover; fixed effects model; heterogeneity analysis