Relationship Between Chinese Stock Market And Macro Economy

Literature review Name/student number: Yatian Chen B150132143 The study of the relationship between Chinese stock market and macro economy:† Can Chinese stock market imply macro economy?† 1.Motivation Researches concerning on macro economy and stock markets of established markets have been widely studied in the past. Early studies in this area support the argument that stock market returns are influenced by economic announcements ( Hardouvelis, 1988 ). Additionally, authors such as Levine and Zervos ( 1996 ) have produced significant evidence that stock markets returns are influenced by macroeconomic indicators such as Gross Domestic Production ( GDP ), productivity, employment and interest rates. However, there has been†¦show more content†¦Therefore, a study for China is essential as it potentially creates a necessary background for studying similar areas for Brazil, Russia, India and South Africa. Further, It is interesting that even though China has become one of the most powerful economic unit in the world and also has been developing steadily and fast during the last three decades, its stock market is still very volatile overtime. Thus, problems that whether the Chinese stock market really has the ability to react macro economy or how well the stock market can fit the macro economy still need some further studies and researches to discover. The conclusion of this dissertation can not only help the Chinese investors to make better investment decisions but also make some suggestions to the the ones who regulate Chinese economy and finance. 2.Theories, data, variables and research methods Before the research, it is meaningful to be well aware of the basic theories related to the topic, which thus will assist for choosing suitable variables. Following what is mentioned above, it is able to apply good research methods to conduct the research. 2.1 Theories 2.1.1 Capital Asset Pricing Model Even though many articles are conducted to critically study the capital asset pricing model ( CAPM ), it is widely used around financial