Monetary Policy, Investor Sentiment, and the Asymmetric Jump Risk of Chinese Stock Market

To investigate the impacts of monetary policies on the jump risk of Chinese stock market, we introduce them into an exponential generalized autoregressive conditional heteroskedasticity with autoregressive jump intensity (EGARCH-ARJI) model. A new jump model, i.e., the EGARCH-ARJI model with monetary policy (EGARCH-AM), is constructed. Moreover, investor sentiment is considered to investigate the interaction effect of a monetary policy and investor sentiment on the jump intensity. Results show that the announcement of an interest rate policy has significantly positive effect on it, while the effects of the announcement and implementation of a required reserve ratio policy are not significant. In addition, the interaction effect of an interest rate policy and investor sentiment on the jump intensity is positive. The interaction effect of the announcement of a required reserve ratio policy and investor sentiment is negative. The interaction effect of the implementation of a required reserve ratio policy and investor sentiment does not exist. The research results are of guiding significance for policy makers and investors to fully learn the time-varying volatility and jump risk of stock markets.