Factor Risk Spillovers in a Policy-Sensitive Market: The Role of EPU in China

This study examines risk spillovers in China’s equity market from a factor-network perspective by constructing a TVP-VAR connectedness system that links six pricing factors with four disaggregated economic policy uncertainty (EPU) indices. The baseline 2005–2021 analysis identifies a structural break around 2014–2015, after which HML replaces RMW as the leading net transmitter in the factor network. On the EPU side, monetary policy uncertainty (MPU) and exchange-rate policy uncertainty (ERPU) emerge as the most persistent net transmitters. Further evidence shows that MPU is more closely associated with changes in the total spillover index (TSI), whereas ERPU is more closely related to changes in factor-level transmitter–receiver roles. A supplementary aggregate-EPU extension through 2024 serves as a factor-side check for the post-2021 period.