Introducing the environmental governance policy uncertainty (EGPU) for China

We construct a new Environmental Governance Policy Uncertainty Index (EGPU) for China using text analysis of mainstream newspapers in mainland China. And we examine the impact of environmental governance policy risk on the market performance of high-emission industries in China. We employ wavelet coherence and wavelet quantile analysis to investigate the effects across time and frequency domains and under different market conditions. The findings are followed. EGPU has a significant impact on the high-emission industry market in the short, medium and long term. In the short term, EGPU will trigger an immediate response in the high-emission stock market. In the medium term, EGPU will lead to a reduction in corporate investment and a slowdown in production activities. In the long term, EGPU will boost the market performance of high-emission industry indices. From a different dimension, the spillover effect of EGPU on the market is significantly different. Under stable market conditions, the coal and chemical industries are more sensitive to policy changes. In contrast, the cement and steel industries are more responsive to policy uncertainty in most market conditions. Based on the new EGPU index of Chinese media resources, we provide insights for policymakers and investors to better navigate the complex policy environment and develop effective risk management strategies.