Measuring Economic Uncertainty in China Based on Baidu Search Index
This paper proposes a daily measure of economic uncertainty(EU)in China based on Baidu search index.Compared with previous EU measures based on newspapers,The new EU measure responds more promptly and strongly to major events.Granger causality tests indicate that our new EU measure precedes indicators.The new EU measure significantly predicts stock market returns,outperforming existing indicators in this aspect.Moreover,we assess the effectiveness of our measure from the perspective of firm investment decisions.Consistent with theoretical research findings,we find that when economic uncertainty increases,firms significantly reduce investment and increase cash holdings.Overall,compared with existing measures,this measure can reflect e-conomic uncertainty more timely and effectively.By providing such a measurement,we contribute to the reduction of risks associated with economic uncertainty and the promotion of stable econom-ic development.
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