What Drives the Shanghai Stock Market? An Examination of its Linkage to Macroeconomic Fundamentals

Julian Inchauspe () and Cabalu Helen

MPRA Paper from University Library of Munich, Germany

Abstract: Previous research has struggled to explain the valuation of A-shares in the Shanghai stock market using traditional financial indicators. We offer a different perspective by analysing the influence of key macroeconomic variables. The novelty of our econometric study is the implementation of a Markov-switching mean adjustment of stock returns that allows for detecting asymmetric relationships for periods of generally increasing and decreasing stock prices. We find evidence that whereas macroeconomic indicators do not matter during tranquil periods, investors do react to changes in domestic consumption and exchange rate policy during periods of extremely high or low excess stock returns.

Keywords: Shanghai stock exchange (SSE); Macroeconomic fundamentals; Markov-switching (MS); bull market; bear market (search for similar items in EconPapers)
JEL-codes: G12 G15 G19 O16 (search for similar items in EconPapers)
Date: 2013-09-16
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