AN EMPIRICAL STUDY FOR THE RELATIONSHIP OF CHINESE STOCK MARKET AND MACROECONOMIC INDICATORS

Abstract

This paper discusses the relationship between Shanghai stock index and nine macro economic indicators, namely CPI, fixed asset investment, export, industrial output, M1, M2, domestic loan, short-term interest rate and savings, using cointegration theorem and Granger causality test during the sample period from January 1996 to December 2005. The whole sample period is further divided into two periods to investigate whether such relationship has become stronger over time. The result shows that stock market is strongly correlated with Chinese macro economy in the long run; half the macroeconomic indicators provide explanatory power to stock index in the short run of the whole sample period. However there is no strong evidence shows that such correlation is stronger in period two than period one.