The Impact of EPU on the Relation Between International Oil Price Shocks and the Chinese Stock Market: Industry and Transnational Perspectives

In this study, we employ the panel smooth transition (PSTR) model to establish a nonlinear framework for examining the relationship between international oil prices and stock returns in China. We specifically investigate how economic policy uncertainty (EPU) acts as a threshold-driven moderator in this relationship. We analyze data from August 2007 to November 2023 and select the EPU index from seven representative countries to examine its cross-border effects on China’s oil–stock relationship. Furthermore, we incorporate an analysis of industry heterogeneity to gain a deeper understanding of how international crude oil prices impact stocks in both upstream and downstream industries. Our findings reveal the following: (1) Under the influence of EPU, there is a significant nonlinear regime-switching effect between international oil prices and Chinese stock returns. (2) Sensitivity to U.S. EPU is the highest, but its effect on risk magnification is the weakest. In contrast, European EPU shows lower sensitivity but a more pronounced risk magnification effect. (3) Chinese EPU significantly amplifies the risk for midstream manufacturing stocks more than for downstream consumer service stocks. This variation reflects the differing abilities of industries to transfer costs along the supply chain; however, there are no substantial differences in sensitivity.