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Stock prices and demand for money in China: New evidence

Ahmad Zubaidi Baharumshah (), Siti Hamizah Mohd and Marial Awou Yol

Journal of International Financial Markets, Institutions and Money, 2009, vol. 19, issue 1, 171-187

Abstract: This paper investigates the relationship between stock prices and the real money demands for China within a cointegrated framework. This study reports two important results. First, test results reveal that a stable long-term relationship exists between broad money (M2) and its determinants including real income, foreign interest rate, and stock prices. Second, stock prices have a significant substitute (positive) effect on long-run broad-money (M2) demand and its omission can lead to serious misspecification in the money demand function in both the short- and long-run. Finally, we demonstrate that long-run income elasticity is not significantly different from unity with the inclusion of stock prices in the money demand equation.

Keywords: Real; M2; money; demand; Cointegration; test (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:19:y:2009:i:1:p:171-187

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