Author(s)

Ziwen Chen ¹

Affiliation(s)

¹ Quantitative Economics and Econometrics Program, Economics Department, New York University, New York, NY 11101, United States

Corresponding Author

Ziwen Chen

ABSTRACT

In this paper, we analyze the potential long-term relationship between Chinese Stock market and Macroeconomic indicators through Johansen Method and Engle-Granger Two-Step Approach by taking the monthly data since the first month of 2011 to 2019. Also, we apply VAR model into investigating the granger-causality and impulse-response results between Chinese stock performance and Macroeconomies. Through comparing the pseudo-forecast results of cointegration method by Engle-Granger and VAR model, we find that the cointegration model of Engle-Granger yields the best forecasts. Lastly, we test the volatility of Chinese stock market through GARCH families and find that TGARCH is the most appropriate model by evaluating the minimum AIC among applicant GARCH models.

KEYWORDS

Chinese stock market, macroeconomic indicators, cointegration, volatility

CITE THIS PAPER

Ziwen Chen, The Empirical Analysis of Relationship between Chinese Stock Market and Macroeconomic Indicators. Financial Engineering and Risk Management (2023) Vol. 6: 32-41. DOI: http://dx.doi.org/10.23977/ferm.2023.060405.

REFERENCES

[1] Los A. Cornelis, and Bing Yu. "Persistence characteristics of the Chinese stock markets." International Review of Financial Analysis 17.1 (2008): 64-82.
[2] Kwan Chi Hung. "Business Cycle in China since the Lehman Crisis: Interaction among Macroeconomic Policy, Economic Growth and Inflation." China & World Economy 21.5 (2013): 1-19.
[3] Jansen W. Jos, and Niek J. Nahuis. "The stock market and consumer confidence: European evidence." Economics Letters 79.1 (2003): 89-98.
[4] Taylor P. Mark, and Helen Allen. "The use of technical analysis in the foreign exchange market." Journal of international Money and Finance 11.3 (1992): 304-314.
[5] Wentao Huang, and Minjie Dong. "Chinese Festival Turbulence, Weakening Macroeconomy." Macroeconomic Dynamic Institution, China Securities (2019).
[6] Yangru Wu. "Momentum trading, mean reversal and overreaction in Chinese stock market." Review of Quantitative Finance and Accounting 37.3 (2011): 301-323.
[7] Blecker A. Robert. "The US economy since the crisis: slow recovery and secular stagnation." European Journal of Economics and Economic Policies: Intervention 13.2 (2016): 203-214.
[8] Dickey A. David, and Fuller A. Wayne (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American statistical association, 74(366a), 427-431.
[9] Hans Genberg, Kevin McCauley, Yung Chul Park, and Avinash D. Persaud. Official reserves and currency management in Asia: myth, reality and the future. Geneva: International Center for Monetary and Banking Studies, 2005.
[10] Naughton Barry. "Supply-side structural reform: Policy-makers look for a way out." China Leadership Monitor 49.1 (2016).
[11] Johansen Søren (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12(2-3):231-254.
[12] Engle F. Robert, and Clive WJ Granger. "Co-integration and error correction: representation, estimation, and testing." Econometrica: journal of the Econometric Society (1987): 251-276.
[13] Phillips CB Peter, and Perron Pierre (1988). Testing for a unit root in time series regression. Biometrika, 75(2):335-346.
[14] Brooks Chris. Introductory econometrics for finance. Cambridge university press, 2019.
[15] Hamilton Clive, and Clive Hamilton. The mystic economist. Fyshwick: Willow Park Press, 1994. Kwiatkowski Denis, Phillips CB Peter, Schmidt Peter, and Yongcheol Shin (1992). Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? Journal of Econometrics, 54(1-3):159-178.
[16] Lee F. Cheng, Gongmeng Chen, and Oliver M. Rui. "Stock returns and volatility on China's stock markets." Journal of Financial Research 24.4 (2001): 523-543.
[17] Jian Chen, Fuwei Jiang, Hongyi Li, and Weidong Xu. "Chinese stock market volatility and the role of US economic variables." Pacific-Basin Finance Journal 39 (2016): 70-83.
[18] Bollerslev Tim. "Generalized autoregressive conditional heteroskedasticity." Journal of econometrics 31.3 (1986): 307-327.
[19] Engle F. Robert, David M. Lilien, and Russell P. Robins. "Estimating time varying risk premia in the term structure: The ARCH-M model." Econometrica: journal of the Econometric Society (1987): 391-407.
[20] Grier B. Kevin, and Mark J. Perry. "The effects of real and nominal uncertainty on inflation and output growth: some GARCH‐M evidence". Journal of Applied Econometrics 15.1 (2000): 45-58.
[21] Zakoian Jean-Michel. "Threshold heteroskedastic models." Journal of Economic Dynamics and control 18.5 (1994): 931-955.
[22] Glosten R. Lawrence, Ravi Jagannathan, and David E. Runkle. "On the relation between the expected value and the volatility of the nominal excess return on stocks." The journal of finance 48.5 (1993): 1779-1801.
[23] Nelson B. Daniel. "Filtering and forecasting with misspecified ARCH models I: Getting the right variance with the wrong model." Journal of Econometrics 52.1-2 (1992): 61-90.
[24] Bouchaud Jean-Philippe, Andrew Matacz, and Marc Potters. "Leverage effect in financial markets: The retarded volatility model." Physical review letters 87.22 (2001): 228701.

Sponsors, Associates, and Links

---

• Information Systems and Economics
  
  
• Accounting, Auditing and Finance
  
  
• Industrial Engineering and Innovation Management
  
  
• Tourism Management and Technology Economy
  
  
• Journal of Computational and Financial Econometrics
  
  
• Accounting and Corporate Management
  
  
• Social Security and Administration Management
  
  
• Population, Resources & Environmental Economics
  
  
• Statistics & Quantitative Economics
  
  
• Agricultural & Forestry Economics and Management
  
  
• Social Medicine and Health Management
  
  
• Land Resource Management
  
  
• Information, Library and Archival Science
  
  
• Journal of Human Resource Development
  
  
• Manufacturing and Service Operations Management
  
  
• Operational Research and Cybernetics