Empirical Research On The Relationship Between Chinese Stock Market And Economic Growth

Recently, the giant volatility of Chinese stock market in stark contrast to the sustained high growth of macroeconomic, a huge divergence present between the two. Hence, the research on the relationship of Chinese stock price and economic growth and exploration of the interaction mechanism between them are of great significance for guiding the formulation of the relevant economic policy and consummating Chinese capital market and financial system.On the basis of the relevant literature and theory, this paper investigates the Granger causal relationship between the development of Chinese stock market and economic growth, proceeding with the quarterly data of Chinese stock price and the GDP during2001Q1-2013Q4. Upon the foundation that the conventional Granger causality analysis which could only concludes that the stock market activity has obvious unidirectional causality with economic growth, this paper using a Granger causality analysis in the frequency domain, in order to be able to evaluate whether the predictive power is concentrated at the slowly fluctuating components or at the quickly fluctuating components. And it comes to the conclusion that the Granger causality of the stock price index growth for the GDP growth is significant at the low frequencies and insignificant at the high frequencies. Therefore, we believe that the stock market movements in long term is still a barometer of the entity economic development; otherwise, companies and human beings should react less to signals of the stock price which are less persistent in time.