Correlation Analysis Of The Chinese Macro-economic Cycle And Stock Market Cycle

Volatility has been the core of the pricing of financial assets as well as other fields within finance. If the stock market volatility, follows certain rules, so that the stock market may be stable and gradually developed a unique system. We can see from the fluctuations in the cycle of the system to derive the future direction of development in the stock market. In theory, the business cycle, determines the stock market cycle, the wavelength of the fluctuations of economic cycles and the stock market should be roughly equal, the two should have a relationship. However, due to China’s market economy is not yet mature for the development of the stock market is still in its infancy, which could make the stock market and economy are fail to well run, the stock market cycle and economic cycle may occur out of sync.Many foreign scholars, through empirical studies show that in the United States, Britain, Germany, Japan and other developed countries with mature stock market, stock index and macroeconomic core indicators are associated with a higher significantly. In China and other developing countries, due to the poor development of financial markets, the regulatory mechanisms are inadequate, the management of listed companies and investors, the overall quality of higher factors, the stock market cycles and economic cycles are not synchronized. The economic cycle and stock market cycle, the correlation analysis can help us to accurately grasp the laws governing the operation of the economy and stock market, and also provides a theoretical basis for the government macro-control policy and stock market development policies. Start from both theoretical introduction, both the definition and the operation carried out a detailed theoretical literature review of the macroeconomic cycle and stock market cycle, but also to lay a theoretical foundation for further in-depth analysis. Then run on the stock market cycle and economic cycle from the beginning of the stock market was established in1990to the end of2011, compare the two found in the growth rate of this time period, the volatility of the stock market and economic development usually are out of sync even departure from the stock market does not reflect the role of macroeconomic "barometer".By investigating the Shanghai Composite Index growth rate and GDP growth rate empirically with the VAR model, the Granger causality test shows that there does not exist a robust relationship between the two factors which indicates the business cycle of China and stock market cycle share few convergences. Regarding the causes behind the phenomenon, in my opinion, the economy operation in China is always influenced and even distorted heavily by government regulation policies, as a result, the self-regulation function of market-oriented economy weakens which makes business cycle of China barely to function in normal ways. In addition, the Chinese stock market is still in its infancy and experiences a number of problems such as inappropriate pricing mechanism, excessive government regulation, incomplete market regulation framework, poor corporate governance, underdeveloped stock medium organizations and irrational investors etc. All of these factors mentioned above collectively contribute to the fluctuation of Chinese stock market which is more fragile and disorganized compared to its counterparts. This dissertation is an attempt to further investigate business cycle and stock market cycle in the hope of obtaining something useful.