Influences of Macroeconomic Variables on Stock Market in China: An Empirical Analysis

18 Pages Posted: 7 Feb 2020

See all articles by Peng Huang

Peng Huang

Arkansas Tech University

Shen Chen

Western Michigan University

Wan Wei

Arkansas Tech University

Ahmed Elkassabgi

Arkansas Tech University - Department of Business and Economics

Date Written: October 1, 2019

Abstract

This paper investigates the influences of macroeconomic variables on the stock market in China. We use Granger causality tests, impulse response functions, and variance decompositions to examine how fundamental macroeconomic variables, such as output proxied by electricity generation, inflation, money supply, and short-term interest rate affect the Shanghai Stock Exchange Composite Index. Our estimation results indicate that variables that measure macroeconomic activity, such as output growth and inflation, have no statistically significant impact on stock returns. Moreover, the stock returns do not respond to changes of monetary policy variables such as money supply and short-term interbank offered rate. This implies that monetary policy does not exert significant influences on stock returns. In sum, the performance of the China stock market does not reflect macroeconomic fundamentals.

Keywords: Stock Returns, Macroeconomic Variables, China

JEL Classification: E44, G12

Suggested Citation

Huang, Peng and Chen, Shen and Wei, Wan and Elkassabgi, Ahmed, Influences of Macroeconomic Variables on Stock Market in China: An Empirical Analysis (October 1, 2019). Available at SSRN: https://ssrn.com/abstract=3519674 or http://dx.doi.org/10.2139/ssrn.3519674

Peng Huang (Contact Author)

Arkansas Tech University ( email )

106 west o st
Russellville, AR 72801
United States

Shen Chen

Western Michigan University ( email )

Kalamazoo, MI 49008
United States

Wan Wei

Arkansas Tech University ( email )

AR
United States

Ahmed Elkassabgi

Arkansas Tech University - Department of Business and Economics ( email )

United States

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