Macroeconomic Shocks, Information Transmission And Chinese Stock Market

The paper studies the impact of macroeconomic shocks on stock market. It is meaningful to understand the relations between macroeconomy and stock market both theoretically and practically. In theory, risk pricing is the key issue in financial academy. It is possible to eliminate the individual risk through portfolio management but not the systematic risk, which is mainly caused by macroeconomic conditions. In practice, the investment performance will be improved if the aggregate stock returns can be explained by macroeconomic factors.The relation between macroeconomy and stock market is very complex. Although the stock returns must be affected by macroeconomy in theory, the empirical evidence can hardly support this idea. In Chinese stock market, different researches obtain different results. Some papers argue that the macroeconomy does affect stock returns, and the others argue it is not. The inconsistent conclusions are probably caused by different research method. First, the stock market will react only to the unexpected shocks. Previous studies usually statistical methods to calculate the unexpected shocks, which will lead to different results by different model assumptions. Second, monthly data are used in previous studies. However, the monthly data contains much more information than macroeconomic changes. Thus it is very difficult to identify the impact of macroeconomic shocks on stock returns.To overcome the difficulties, daily market data is used in the paper to investigate the impact of macroeconomic shocks on stock returns. Meanwhile, the paper uses forecast data from financial institutions to calculate the market expectation on macroeconomy. The results show that the shocks from industrial production and production price index will significantly impact the stock returns in Shanghai and Shenzhen markets. Specifically, the unexpected shock from industrial production is positively related with the stock returns while the unexpected shock from production price index is negatively related. However, in Growth Enterprises Market (GEM), none macroeconomic factors would impact the returns.Furthermore, the event study method is used to investigate the return sustainability caused by macroeconomic shocks. The results show that the returns only exist in the day when macroeconomic data is published. The cumulative returns do not increase after five trading days. This means the information from macroeconomic shocks is absorbed in short time. The results support the semi-strong form efficient market hypothesis.Besides, the trading volume and returns volatility issues are studies in the paper. The results show that the announcement effect of monetary policy will decrease market trading volume and the macroeconomic shocks will not affect returns volatility.