Can US Economic Variables Predict the Chinese Stock Market?

Pacific-Basin Finance Journal, Forthcoming

24th Australasian Finance and Banking Conference 2011 Paper

32 Pages Posted: 27 Aug 2011 Last revised: 13 Nov 2013

See all articles by Jeremy Goh

Jeremy Goh

Singapore Management University - Lee Kong Chian School of Business

Fuwei Jiang

Central University of Finance and Economics (CUFE)

Jun Tu

Singapore Management University - Lee Kong Chian School of Business

Yuchen Wang

Department of Statistics and Finance, University of Science and Technology of China

Date Written: July 30, 2012

Abstract

In the last few decades, we observed a significant increase in global economic activities and these activities may have an impact on both China's economy and stock market. Given the potential impact, we empirically examine whether US economic variables are leading indicators of the Chinese stock market. Prior to China joining the World Trade Organization (WTO) in the end of 2001, we find no statistical relationship between US economic variables and the Chinese stock market returns. However, we find US economic variables have statistically significant predictive power for periods after China's admission into the WTO. In addition, we show that the combination of US and China economic variables is more superior in terms of forecasting ability than either single country economic variables. These findings are of economic importance from an investment perspective.

Keywords: Chinese stock market; Return predictability; International investment

JEL Classification: C22, C53, F3, G12, G17

Suggested Citation

Goh, Jeremy and Jiang, Fuwei and Tu, Jun and Wang, Yuchen, Can US Economic Variables Predict the Chinese Stock Market? (July 30, 2012). Pacific-Basin Finance Journal, Forthcoming ; 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1914258 or http://dx.doi.org/10.2139/ssrn.1914258

Jeremy Goh

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Fuwei Jiang (Contact Author)

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Jun Tu

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
#04-01
Singapore, 178899
Singapore

Yuchen Wang

Department of Statistics and Finance, University of Science and Technology of China ( email )

96, Jinzhai Road
Hefei, Anhui 230026
China

HOME PAGE: http://en.business.ustc.edu.cn/

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