China's Stock Market And Macroeconomic Correlation Studies

The stock market is increasingly becoming an important part of China’s marketeconomy system. The healthy development of stock market is an importantfoundation for the stable development of China’s economy. Macroeconomy is thefundamental factor. To clarify the correlativity between the stock market and its manyinfluencing factors is the basic premise to keep the stock market stable developing.The research starts from the aspects of economic factors which is only a part of allinfluencing factors by theoretical analysis, lessons learned, empirical tests and othermethods. The thesis focuses on the correlation between changes in stock prices andthe economic impact factor variable change from four aspects, includingmacroeconomic economic cycle, macroeconomic policy, macroeconomic fluctuations,the world economy and international stock market.Macroeconomic cycle is the influencing factors in the stock market. From atheoretical point of view, the basic logic of the correlativity between the stock marketcycles and macroeconomic cycle lies in macroeconomic fundamentals determine thePerformance of Listed Companies, the operating results of listed companies have adecisive impact on the stock price. The macroeconomic cycle thus becomes animportant risk factors of the stock market. At the same time, the stock market cycledoes not respond to the shock of macroeconomic cycles passively. The stock markethas a dynamic reaction to macroeconomic performance. The stock market cycle cannot devaite from the economic cycle and run independently in the long run, but thestock market run its own laws and is affected by many factors.In the short andmedium term stock market cycle and economic cycle may deviate possiblely. Analysisof intuitive experience from the angle of China’s stock market and macroeconomiccyclical operation in1996-2005, the stock index and macroeconomic coincidentcomposite index was a departure. In the period from May2005to May2012thedepartcure of them has a reduction.Measured from the empirical point of view, wefound that the stock market and macroeconomic cycles showed both long-term andstable negative correlativity in the upward phase of the economic cycle. Grangercausality was not significant between variables which on behalf of the stock marketand macroeconomic cyclical run trends. However, in the downward phase ofeconomic cycle, it presented long-term and stable positive correlativity. Granger causal relationship between variables on behalf of the stock market andmacroeconomic cyclical run enhanced. By studying the different cycles of the stockmarket and macroeconomic performance, the results showed that the relationshipbetween the two is instable before the non-tradable share reform, regardless ofco-integration test or GRAGER causality test. Co-integration test showed thesynergies enhanced but still did not exist a significant stable relationship between thetwo. There is not enough required econometric conditions to support the long-termand stable relationship, but GRAGER causality test showed the stock market is moresensitive to macroeconomic indicators, and their interaction impacted greater.Experience in the analysis and measurement of test results basically consistented.Macroeconomic fundamentals is the decisive factor affecting the stock market.Macroeconomic fundamentals is reflected by the key macroeconomic variables.Examining the correlativity between macroeconomic fundamentals and stock marketcan commence from the mean level or the level of variance. In a mature marketeconomy, the stock market is an important part of the overall national economy. Thecorrelativity between the stock market and macroeconomic variables should be moreclosely either the mean or variance levels in theory. It usually prsentes the lead-lagrelationship or two-way volatility spillover effects. Four variables has one-wayvolatility spillover effects on the Shanghai Composite Index In the7macroeconomicvariables examined. There is no volatility spillover effects between the other twovariables and the Shanghai Composite Index. The fluctuations between basicmacroeconomic variables and the Shanghai Composite Index can be attributed toone-way and less volatility spillover effects. The yield of the stock market andmacroeconomic variables in the second moment level is asymmetric one-wayvolatility spillover effects.There is a considerable degree of departure.The transfer ofinformation between the stock market and macroeconomic variables presentsinterruption, distortion or alienation.Macroeconomic policies is an important factor to the stock market. The sit-uptime of China’s stock market is not long. The policy was once prominent. In theempirical part, this paper focuses on analysis of the impact of interest rates andmoney supply on the stock market by building a VAR (VECM model), with theimpulse response function and variance decomposition techniques. Analyzed from the perspective of the interest rates affecting the stock price index in the economic upturnstage regardless of the impulse response analysis or variance decomposition it showedthat the stock price index to interest rates was not sensitive, but the interest rate has amore significant impact on the share price index in the economic downward phase.From the perspective of M2impacting on the stock price index, in the economyupward phase impulse response analysis showed that direction of the pulse responseof the stock price index to M2was unstable. The stock index continued negativereaction trend and had an oscillating trend. In the economic downturn stage, the stockindex had an weakly positive reaction to M2. The magnitude of response was verysmall compared to the upstream stage, but it was more in line with the financialtheories. Variance decomposition showed M2had different explaining ability to stockindex respectively in the upstream and the downstream stage of economic cycle. M2accounting for index in the period of economic expansion is relatively large, and it isvery small proportion in a tight economy. The article used Event Study Approach toinvestigate the influnce of Stamp Duty adjustment to the stock market. The resultindicated that the Stamp Duty adjustment significantly affected the Index Return inthe short term, and the Stamp Duty adjustment had a short-term regulation effects.From the perspective of relatively long time interval, the Stamp Duty will not changethe basic trend of the stock market operation. The Stamp Duty is not available to beregarded as a purely short-term regulatory tools, otherwise it may artificially increasethe stock market "noise" and increase the fluctuations of the stock market. It is notbenefit to the long-term healthy and stable development of the stock market.International stock markets and world macroeconomy is the important externalinfluencing factor of the Chinese stock market. The world macroeconomy andinternational equity markets is an extension of the domestic macroeconomyworldwide in the open economy. It is the correlativity that examined between Chinesestock market and the international macroeconomy and stock market on the basis ofthe theoretical analysis by constructing the DCC-MGARCH model. The resultsshowed that the "contagion" effect from the current fluctuations, changes in the worldeconomy and global financial volatility to China’s stock market was greatly enhanced.From the medium term, correlativity between China’s stock market and the worldeconomy and international equity markets improved to a considerable extent, but independence of it’s running is still very obvious. In a certain period of time it maydepart from each other. The linkage decreased significantly, which is a result ofChina’s stock market to bubble. From the long-term trend China’s stock market cannot run independently and be divorced from the trend of the world economy.Thefinancial globalization, economic integration trend is irreversible, and with thegradually internationalization of China’s stock market and the gradual liberalization ofcapital projects, the correlativity between the Chinese stock market and the worldeconomy, the major international stock market should be gradually increased.By summarying the correlativity between the stock market and macroeconomiccycles, macroeconomic volatility, macroeconomic policies, the world economy andinternational stock markets, thesis made the corresponding recommendations focuingon finance and stock market building, policy formulation and implementation etc.