In May 2020, China formulated the Internal Circulation Strategy (ICS) to address the risks of global economic downturns caused by deglobalization. This study is the first to empirically examine the impacts of China's ICS on its stock market performance, focusing on investor behavior. Using data from the Baidu search index and the Shanghai and Shenzhen stock exchanges for the period 27 July 2020 to 5 May 2023, the results reveal that stock returns are negatively associated with investor attention to China's ICS, while stock volatilities are positively associated. This suggests that the ongoing and profound shift in economic strategy might have raised concerns among investors. Furthermore, our analysis of heterogeneity finds that the negative association with stock market returns is statistically significant only during times of high policy uncertainty or geopolitical risk. The positive association with stock market volatility is statistically significant only during times of high geopolitical risk. This indicates that the stability of the internal and external environment plays a crucial role in alleviating investor concerns. We also observe mixed impacts on different sectors of the stock markets, with some sectors unaffected while others primarily experiencing a decline in returns.

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