An Empirical Analysis On The Relationship Between Stock Price And Macroeconomic Variables In China

This paper tests the existence of a relationship between stock price and macroeconomic variables in China with econometrical method. First of all, a long relationship between stock price and macroeconomic variables is tested by Johansen cointegration theory. The result shows that there exists the positive cointegration relationship between stock price and industrial production, while the stock price is negative with money supply, interest rate and price index. On the base of multivariate cointegration analysis, this paper stimulates the Error Correction Model between these variables to make sure the short interaction among these variables. The result shows there is different presentation between stock price and industrial production, money supply and interest rate in the short run. To get some insight into the response of stock price to some random shock of the variables, an Impulse Response Analysis is performed to find that stock price is slow to response to the random shock, showing stock market is not efficient enough. These findings have great theoretical and practical significance on the making of the macroeconomic policy, especially on the analysis and forecast of domestic stock market.