An Empirical Study On The Relationship Between China’s Stock Market And Macroeconomic Factors

Stock market is an important segment of the financial system of a country andhas always been an area of serious concern for policy makers and academia. In aneconomy that the stock market mechanisms are relatively sound, themacroeconomic situation determines the stock market’s fundamentals, while thestock market fully reflects the macroeconomic changes and is often defined as the“barometer” of the economy. However, this is still a controversial issue in our country.The early studies of this problem were mostly based on the framework of domesticeconomic environment. With the development of financial globalization andintegration, the influence among each market is also increasing so that one country’sstock market movement is often influenced by other markets. Therefore, this paperempirically studies the relationship between China’s stock market after the equitydivision reform and macroeconomic factors in the background of internationalfinancial market integration, using methodology of VAR to incorporate the influenceof the international stock market into the model, together with the impulse responsefunction and variance decomposition analysis.The impulse response function results show that,①China’s stock market hasemerged comovement with international stock markets, but its influence is still limited,China’s stock market remains its unique running situation to some extent.②Theinfluence of economic growth on China’s stock market has significant promotingeffect and longer persistence effect, and China’s stock market achieved its positionas a macroeconomic "barometer" to a certain extent.③The influence of appreciationof RMB on China’s stock market has significant promoting effect and longerpersistence effect, indicating that the positive effect of attract international capitalinflow is more obvious than the negative effect of deterioration of internationalbalance of payment.④Money supply growth can bring about significant positiveshock-effect on China’s stock market in the short term, and China’s stock market hasobvious "money-driven" feature.⑤The short-term inflation can bring about positiveeffect on China’s stock market, but will gradually transform into a negative effect inthe long run.⑥The variance of interest rates of central bank bills will produce negative effect on China’s stock market and China’s stock market has a strongsensitivity to the central bank’s monetary policy operations.Variance decomposition results indicate that, without consideration of thecontribution of Shanghai Composite yield itself, exchange rate fluctuation has thegreatest contribution to the Shanghai Composite yield, which indicates thatappreciation of RMB has a better explanatory power on the rise of China’s stockmarket. Secondly is GDP growth rate, although money supply growth and CPIgrowth rate are well-matched with exchange rate fluctuation in the largest shock level,it reduce their overall contribution because of the impermanency of their positiveshock effects. SP500yield has the least contribution.In general, the two analyses obtained the basically same conclusion, whichdemonstrates that China’s stock market volatility is influenced by domesticmacroeconomic factors to a greater extent, the influence of the comovement effect ofinternational stock markets is still limited.