Abstract: This paper constructs a newspaper-based Chinese Equity Market Volatility (CEMV) tracker that moves with the realized volatility of the Chinese stock market. Using the macroeconomic data from January 2005 to October 2020, we further estimate a structural vector autoregressive (SVAR) model to assess the impact of CEMV on the Chinese economy and equity prices. We find that:(1) The CEMV index peaks are closely related to the large market fluctuations. Regressing the realized volatility of the stock market index on contemporaneous EMV values yields a significant slope coefficient. (2) Parsing the underlying text, we construct the CEMV indexes of four policy categories that respond differently to specific market shocks. (3) The stock market volatility driven by policy news foreshadows declines in output growth, price levels and equity returns. Moreover, CEMV has an overall positive impact on money supply growth and exacerbates the short-term fluctuations in investor sentiment.

Key words: text analysis, stock market volatility, macroeconomy, investor sentiment, SVAR model