The International Stock Market Return Predictability Based On China Stock Market Return

With the development of China's economy,China plays a more and more important role in the international economy.China is one of the most important economies in the world,and also one of the largest traders in the world.And China has strong trade tie to other countries.The stock market is the barometer of the economy,and it is also concerned by many investors.The study of the stock market return prediction is of great significance to the academic research and the practical application.The significance of this paper lies in which it finds that China stock market return predicts the stock market returns of many countries significantly in the world.The empirical result demonstrates the influence of China stock market on the stock markets of many countries in the world,which conforms to the current era background.This paper mainly studies the relationship between China stock market return and other stock market returns.The China stock market return predicts the stock market returns of 26 countries significantly in this paper.The in-sample and out-of-sample predictability is significant and robust.At first,in the in-sample test,China stock market return can predict other countries' stock market return.At the same time,this paper has also controlled a number of related variables for robustness test,and China stock market return still shows significant predictive ability.Next,in view of the inadequate persuasiveness of the results of the in-sample test,this paper conducted the out-of-sample test according to the relevant research literature.In the out-of-sample test,the out-of-sample predictive error of the target prediction model considering Chinese stock market return is smaller than that of the model without considering Chinese stock market return.In other words,China's stock market return has significant out-of-sample predictive ability.Finally,in the economic explanation part,this paper explores the sources of the predictive ability of Chinese stock market return from the perspective of international trade and the news-diffusion model.From the view of international trade,for comparation,26 countries are divided into three groups according to China's export or import to each country,respectively.The more China exports to the portfolio,the better is the forecasting result that the China stock market return predicts its stock market return.Comparatively speaking,the groups divided through import doesn't show similar results.Therefore,China's export to each country makes different the predictive ability of the China stock market return on stock market returns of different countries.From the view of the news-diffusion model,the empirical result suggests that information frictions explain the predictive power of the China stock market return.