Stock Prices and the Macroeconomy in China

This paper analyses the relationship between stock prices and Gross Domestic Product (GDP) in China in the context of a VAR/VEC model. The study finds (i) a long-run, cointegrating relationship between stock prices and GDP; (ii) strong evidence of long-run causality from the economy to the stock mar...

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Bibliographic Details
Published in:The Asia Pacific journal of economics & business 2012-06, Vol.16 (1/2), p.1
Main Authors: Peng, Jiangang, Cui, Jie, Qin, Fuyong
Format: Article
Language:English
Subjects:
Capital assets
Consumption
Economic models
GDP
Gross Domestic Product
International finance
Investments
Macroeconomics
Prices
Securities markets
Stock exchanges
Stock prices
Studies
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Summary:This paper analyses the relationship between stock prices and Gross Domestic Product (GDP) in China in the context of a VAR/VEC model. The study finds (i) a long-run, cointegrating relationship between stock prices and GDP; (ii) strong evidence of long-run causality from the economy to the stock market but not vice versa; and (iii) modest but weaker evidence of a similar short-run effect. These are borne out by the impulse-response functions (IRFs), which show a small and weak link from the stock market to the economy but a stronger and much more substantial effect in the opposite direction. This is consistent with the relatively small size of China's stock market. [PUBLICATION ABSTRACT]
ISSN:1326-8481