Chinese Stocks during 2000–2013: Bubbles and Busts or Fundamentals?

Priscilla Liang and Thomas D. Willett

Chinese Economy, 2015, vol. 48, issue 3, 199-214

Abstract: Although the Chinese economy has weathered the recent global financial crisis well, Chinese financial markets performed poorly from late 2007 through the end of our sample period in 2013. This apparent disconnect between measured economic fundamentals and stock market performance has attracted considerable attention. However, it is important also to investigate whether this disconnect is only short-term with macroeconomic variables continuing to have important equilibrium relationships over the longer term. This article uses a multivariate cointegration and vector error correction model to test whether domestic macroeconomic fundamentals are important forces in explaining Chinese stock fluctuations. Test results show that economic factors in China have a long-term equilibrium relationship with stock market performance. Stock prices responded consistently negatively to changes in the real exchange rate during 2000–2013. After the Chinese stock market crashed in 2007, stock variations became more responsive to changes of economic fundamentals suggesting that there had been a bubble. Policy-driven factors, such as bank deposits and bank loans, had strong impacts on stock performance. Real economic factors, such as industrial production and exports, also became significant in explaining Chinese stock returns, but their economic impacts were smaller.

Date: 2015
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/10971475.2015.1031600 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mes:chinec:v:48:y:2015:i:3:p:199-214

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/MCES20

DOI: 10.1080/10971475.2015.1031600

Access Statistics for this article

More articles in Chinese Economy from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().