Research on the Impact of Economic Policy Uncertainty and Investor Sentiment on the Growth Enterprise Market Return in China—An Empirical Study Based on TVP-SV-VAR Model

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

International Journal of Financial Studies

ijfs-3193263

Research on the Impact of Economic Policy Uncertainty and Investor Sentiment on the Growth Enterprise Market Return in China -- An Empirical Study Based on TVP-SV-VAR Model

This paper addresses an important area of research in finance, examining the effects of economic policy uncertainty (EPU) and investor sentiment (IS) on market returns in the Chinese Growth Enterprise Market (GEM). While the topic is of interest, there are several key aspects that require significant revision and improvement before the paper can make a meaningful contribution to the literature.

One primary area for improvement is in making the paper more relevant to a broader audience of economics and finance researchers. Although the focus on GEM is valid, expanding the discussion to show how the results could be applied to other emerging or developed markets would greatly enhance the paper's appeal. A broader framing would increase the paper's relevance to researchers, policymakers, and practitioners beyond China.

Another important area is the need for better integration of the existing literature into the analysis. While the manuscript references several studies, it does not critically engage with them to position the current study within the broader body of knowledge. For example, your discussion on investor sentiment could be deepened by incorporating the Twitter-based Economic Uncertainty (TEU) indices developed by Baker et al. (2021), which have been used in studies such as Abudy et al. (2023). This would help you tie your study to a well-established body of work on how sentiment and uncertainty indicators from social media, like Twitter, affect market behavior. It is important to refer to messages or tweets that contain keywords related to uncertainty and the economy, as this would further solidify your analysis.

The paper's treatment of investor sentiment could also be enhanced by positioning it more clearly within the existing literature. Investor sentiment is often understood as a belief about future cash flows and risks not justified by available information (Baker & Wurgler, 2007). Various studies demonstrate how investor mood, driven by human emotions, influences market movements, particularly during events that evoke strong national sentiments. For instance, Edmans et al. (2007) found that national soccer team losses were followed by stock market declines, while Abudy et al. (2022) showed that victories in international events like Eurovision led to positive abnormal returns. These papers could provide a useful comparative framework for your findings and help to contextualize the role of investor sentiment in GEM. The discussions in the paper can be improved by highlighting the time-varying nature of its impact on market dynamics, especially during periods of heightened economic uncertainty.

The use of the TVP-SV-VAR model in your analysis is appropriate, but the rationale for certain methodological choices, such as the selection of lags, needs further explanation. It would be beneficial to provide a more detailed justification for the four-lag structure and discuss the robustness of your findings across different time periods. Additionally, while the robustness checks provide some assurance, extending the analysis to consider different lag structures or additional variables could further strengthen your conclusions.

There are several language issues throughout the manuscript that detract from the clarity of your argument. For example:

• On Page 1, Line 17, "The findings of this research insights…" could be revised..
• On Page 7, Line 254, "thereby more precisely measuring its dynamic impact on stock market returns" could be written as: "allowing for a more precise measurement of its impact on stock market returns."

These are just examples, and similar language issues can be found throughout the manuscript.

Additionally, the paper lacks detailed, self-explanatory captions for its tables and figures, which are important for clarity. Captions should provide enough information so that readers can understand the table without referring back to the text. This is crucial, particularly for complex empirical results.

To conclude, this manuscript addresses an important topic, but it requires revisions to enhance its broader relevance, methodological clarity, and engagement with the existing literature. I encourage you to improve the integration of the current study within the broader literature on economic uncertainty and investor sentiment.

References:

Abudy, M., Mugerman, Y., Shust, E., 2022. The winner takes it all: Investor sentiment and the Eurovision Song Contest. Journal of Banking & Finance. 137, 106432
https://doi.org/10.1016/j.jbankfin.2022.106432

Abudy, M., Mugerman, Y., Shust, E., 2023. National pride, investor sentiment, and stock markets. Journal of International Financial Markets, Institutions & Money. 89, 101879
https://doi.org/10.1016/j.intfin.2023.101879

Baker, M., Wurgler, J., 2007. Investor sentiment in the stock market. Journal of Economic Perspectives. 21 (2), 129–152. https://doi.org/10.1257/jep.21.2.129

Baker, S. R., Bloom, N., Davis, S. J., Renault, T., 2021. Twitter-derived measures of economic uncertainty. https://www.policyuncertainty.com/media/Twitter_ Uncertainty_5_13_2021.pdf

Edmans, A., García, D., Norli, Ø., 2007. Sports sentiment and stock returns. Journal of Finance. 62 (4), 1967–1998. https://doi.org/10.1111/j.1540-6261.2007.01262.

Comments on the Quality of English Language

Moderate editing of English language required.

Several language issues throughout the manuscript detract from the clarity of the argument. For example:

• On Page 1, Line 17, "The findings of this research insights…" could be revised...
• On Page 7, Line 254, "thereby more precisely measuring its dynamic impact on stock market returns" could be written as: "allowing for a more precise measurement of its impact on stock market returns."

These are just examples; similar language issues can be found throughout the manuscript. 

Author Response

Thank you very much for your comments. Please see the attachment of my response.

Author Response File: Author Response.pdf

Reviewer 2 Report

Comments and Suggestions for Authors   The paper explores the interplay between Economic Policy Uncertainty and Investor Sentiment with Growth Market Return using empirical data from China.    There are issues to be adjusted.   - The title is too long and the acronyms TVP-SV-VAR are confusing to the reader,    - All equations should be carefully revised. For instance, in line 199, there is a missing closing parenthesis, in line 222 subscripts are missing, etc...   - More details about the dataset should be added. for instance, not all readers know Wind database, CSMAR database, etc...   - What would be the "other high-frequency macroeconomic indicators" and what would be their frequency, in the passage "This article uses monthly data from Jan. 2016 to Dec. 2023.Using monthly data can better integrate with other high-frequency macroeconomic indicators"?   - I would suggest editing the text in Latex, especially because there are too many mathematical notations.    - Many statistical procedures were run. However, a more business or policy oriented discussion is needed. Author should better show to readers why the study is important.   - The theoretical and empirical contributions as well as implications to the field should be better addressed,     - I could not access some of the links provided in table 1 (e.g. https://guba.east-money.com/list,zssz399006.html). Please, revise. Comments on the Quality of English Language

adjustments and revison are needed.

Author Response

Thank you very much for your comments. Please see the attachment of my response.

Author Response File: Author Response.pdf

Reviewer 3 Report

Comments and Suggestions for Authors

The paper deals with the relationship between economic policy uncertainty, investor sentiment, and returns of the growth enterprise market. The topic is interesting and not very widely studied; thus, a research gap is evident. The authors apply relevant and contemporary methods that are adequate for the stated research objectives. Investigating investor sentiments gives additional value to the research because it considers the principles of behavioural finance and economics.

The paper is logically structured and well-written. A literature review is divided into three parts, which makes the context of the research very clear and points out the previous findings in every related area. The methodology section is also extensive; data selection is well-grounded. TVP-SV-VAR model is used. The results part is detailed. Results of the estimations are presented graphically and in tables, combined with a broad description. Conclusions summarize the obtained results and provide practical implications for policymakers, company managers, and investors. The list of references is adequate and corresponds to the analysed topic.

Some comments for improvement:

What are the implications of research results for other countries or regions, for example, for neighbouring countries?

Limitations of the research and future research directions should be pointed out in the Conclusions section.

Comments on the Quality of English Language

There are some minor grammar and punctuation mistakes.

Author Response

Thank you very much for your comments. Please see the attachment of my response.

Author Response File: Author Response.pdf

Reviewer 4 Report

Comments and Suggestions for Authors

It is recommended to explain in detail the rationale for using posts from Guba.com, as different websites (or official websites or other similar platforms) may capture different expressions of sentiment. Additionally, how are invalid posts defined? The main concern is whether the sentiment classification derived from this method will have statistical significance.

Line 73: When the ERNIE model is first mentioned in the text, the source and full name should be provided.

Lines 195-198: The notation used in the model should be consistent with Equations (1) and (2), such as the case of letters, italics, and subscripts. If Lmax represents a fixed length, what does len(Lmax) mean?

Line 205: V(Wc) does not appear in Equation (3). Similarly, in line 207, is it len(T) or len(T’)?

Line 209: Did the authors use the ERNIE model to construct the sentiment tendency of the known data from existing data or to predict the sentiment tendency of unknown data from the existing data?

In Equation (6), are the elements of matrices A and F1,…,Fp constants or random variables? They need to be consistent with their meanings in Equation (9).

Why does the subscript t in the model (6) start from p+1, and what does p represent?

Line 231: What does the superscript in yt-1,…,yt-s in Xt represent?

Why do A and Σ in Equation (8) not have a subscript t, while A and Σ in Equation (9) do?

Line 241: What is bt?

Unfortunately, the data sources listed in Table 1 provided by the authors are inaccessible.

What dimension n of the model did the authors consider during the empirical stage?

In Figure 5, the authors should use a legend to clarify what each curve represents, or explain this in the figure title.

Comments on the Quality of English Language

 Minor editing of English language required.

Author Response

Thank you very much for your comments. Please see the attachment of my response.

Author Response File: Author Response.pdf

Round 2

Reviewer 1 Report

Comments and Suggestions for Authors

International Journal of Financial Studies

ijfs-3193263

Research on the Impact of Economic Policy Uncertainty and Investor Sentiment on the Growth Enterprise Market Return in China -- An Empirical Study Based on TVP-SV-VAR Model

Thank you for your revisions. The paper has improved, especially in explaining the methodology and expanding the discussion of the results. Overall, it is in good shape.

I have a few minor suggestions for improvement:

Clarification of Investor Sentiment Index: The explanation of the investor sentiment index could be clearer. For example, in Section 3.1, the details of the ERNIE model might be too technical for some readers. Simplifying this part or adding a brief summary before the technical description would make it easier to follow.

Improving Captions for Tables and Figures: As mentioned before, the captions for tables and figures could be a little more detailed to help readers understand them without needing to look back at the text.

The paper has improved a lot, but some final polishing will make it even clearer.

Comments on the Quality of English Language

Minor editing of English language suggested.

Author Response

Thank you very much for your valuable suggestion, which has been very helpful for my paper.

Comment 1：Clarification of Investor Sentiment Index: The explanation of the investor sentiment index could be clearer. For example, in Section 3.1, the details of the ERNIE model might be too technical for some readers. Simplifying this part or adding a brief summary before the technical description would make it easier to follow.

Response 1：Base on your suggestion, I have provided corresponding supplementary descriptions in the article.

Comment 2：Improving Captions for Tables and Figures: As mentioned before, the captions for tables and figures could be a little more detailed to help readers understand them without needing to look back at the text.

Response 2: Base on your suggestion, I have revised captions for tables and figures, added description

Reviewer 2 Report

Comments and Suggestions for Authors

changes in this new version are adequate

Author Response

Thank you very much for your valuable suggestion, which has been very helpful for my paper.

Comment1:Changes in this new version are adequate

Response 1: Thank you very much for your recognition and encouragement 

Reviewer 4 Report

Comments and Suggestions for Authors

The authors have addressed the issues I was concerned about, but there are still a few formatting problems. For example, many mathematical formulas are missing commas or periods after them, such as in (2), (3), (4), (5), (6), (8).... The authors should carefully check and correct them.

In many parts of the article, the formula formatting is not standard. For instance, in lines 256-257, it should be written as:

“...as depicted in equation (7)

yt = ... N(0, Ik), (7)

Σ is a...”

Here, there should be no period after line 256, a comma should be added after the formula in (7), and Σ on line 257 should start at the beginning of the line. Other similar issues throughout the paper should also be corrected.

Author Response

Thank you very much for your valuable suggestion, which has been very helpful for my paper.

Comments 1: 

The authors have addressed the issues I was concerned about, but there are still a few formatting problems. For example, many mathematical formulas are missing commas or periods after them, such as in (2), (3), (4), (5), (6), (8).... The authors should carefully check and correct them.

In many parts of the article, the formula formatting is not standard. For instance, in lines 256-257, it should be written as:

“...as depicted in equation (7)

yt = ... N(0, Ik), (7)

Σ is a...”

Here, there should be no period after line 256, a comma should be added after the formula in (7), and Σ on line 257 should start at the beginning of the line. Other similar issues throughout the paper should also be corrected.

Response 1:

Thank you very much for your careful guidance on the formula errors in my paper. I have checked the punctuation of each formula and made corresponding corrections.