The Analysis Of The Relevance Between Stock Market And Economic Growth In China

Since the Reformation and Opening to the world, especially since the 1990s, China's economy has been in sustaining high-speed rising. Even at the time of Asia Financial Crisis in 1997, China never changes the trend of economic developing. However, the stock market of China has been up and down for the last ten years, and in long-term slump since 2001, which fall away from the fast pace of China's economy. In 2006, the stock market changed its former performance suddenly; nearly 70 companies issued their IPO and collected 157.224 billion RMB. Shanghai composite index and SZSE COMP.SUBINDEX increased dramatically by 130% through the year.Although stock market fluctuates fiercely, China's economy still progresses stably to the target. Thus, it is an issue worth studying that what's the relationship between our stock market and economic development.We always quote stock market as"the weatherglass of macro economy", but how about the situation now? If it is the weatherglass, it should reflect the trend sensitively. However, if it will take a long time that the change of stock market affects the macro economy, or the development of macro economy can not affect the stock market in a short time, how it can be named"weatherglass"? Qi Yunhui and Yu Cungao(1998) said China's stock market had already the function of"weatherglass", but they just analyze with simple regression method with limited time span for sample. Although in recent years, there is some improvement on sample and method of the study of economic development, the shortcoming still exists. The main problems include: (1)statistical analysis is glancing. The most distinct is that long-term observation is glancing, for example, Gang Meng and Chen Jinxian (2003) said China's stock market did not deviate from the macro economy, and deduced that China's stock market supported the theory of Deputized Hypothesis by Fama. (2) The sight of analyzing is too restricted. There are a lot of articles to discuss whether the stock market could reflect economic performance. Even if there are some, the research result is doubtful, e.g. Gao Dawei and Wei Wei's conclusion is that stock market has monomial Granger affect on macro economy. What worth more paying attention to is that, technical analysis is too much and the introspective analysis is limited, and the overall grasp of thing should be improved. (3) As for economic explanation itself, most of the references can not explain the dynamic vision, and neither the important meaning of opening out the positive result to get the economic performance and effect with representative significance.This article uses Error Correction Model to analyze the infection relationship from quantity aspect, makes a positive analysis on the relationship between the stock market development and economic growth from 1992 to 2006, and then studies the relationship between China's stock market and economic growth. As a result, when the Granger cause and effect analyzing method is brought to ECM model, the long-term cause and effect relationship and short-term cause and effect relationship would be tested. Granger cause and effect result shows that the relationship of"Granger cause"and"does not Granger cause"among time series is just the relationship of time. What is important is the direction of infection, not the absolute cause and effect relationship.