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Do the Chinese Bourses (Stock Markets) Predict Economic Growth?

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Author Info

  • Jeffrey E. Jarrett

    (Faculty of Management Science and Finance, University of Rhode Island, U.S.A.)

  • Xia Pan

    (Lingnan College, Sun Yat-sen University, Guangzhou, China)

  • Shaw Chen

    (Faculty of Management Science and Finance, University of Rhode Island, U.S.A.)

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    Abstract

    We study the relationship between the Chinese macroeconomy and the Chinese stock markets, i.e., the bourses in Shanghai and Shenzhen. With this goal, we utilize multiple Granger causality and Geweke linear dependence and examine likelihood ratio statistics between two sectors of the Chinese economy: the Chinese economic prosperity score (EPS)¡Xand its departure from a "healthy level" (EPS-D)¡Xand composite indexes for Chinese securities markets¡XShanghai composite (SH) and Shenzhen composite (SZ). The data cover nine years. The authors found no evidence that SH and SZ Granger cause economic prosperity. The evidence supports the notions that Chinese stock markets respond greater to changes in EPS-D than to EPS and that the SZ is more sensitive to changes in the economy than the SH.

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    Bibliographic Info

    Article provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.

    Volume (Year): 8 (2009)
    Issue (Month): 3 (December)
    Pages: 201-211

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    Handle: RePEc:ijb:journl:v:8:y:2009:i:3:p:201-211

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    Related research

    Keywords: Granger causality; Geweke linear dependence; likelihood ratio tests; vector autoregression;

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    References

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    1. Jean-Marie Dufour & Denis Pelletier & Éric Renault, 2003. "Short Run and Long Run Causality in Time Series: Inference," CIRANO Working Papers, CIRANO 2003s-61, CIRANO.
    2. Lemmens, Aurélie & Croux, Christophe & Dekimpe, Marnik G., 2008. "Measuring and testing Granger causality over the spectrum: An application to European production expectation surveys," International Journal of Forecasting, Elsevier, Elsevier, vol. 24(3), pages 414-431.
    3. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, Econometric Society, vol. 37(3), pages 424-38, July.
    4. Su, Dongwei & Fleisher, Belton M., 1999. "Why does return volatility differ in Chinese stock markets?," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 7(5), pages 557-586, December.
    5. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, American Finance Association, vol. 46(5), pages 1575-617, December.
    6. Xia Pan, 2007. "The Linear Dependence And Feedback Spectra Between Stock Market And Economy," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., World Scientific Publishing Co. Pte. Ltd., vol. 10(03), pages 437-447.
    7. Ng, Lilian & Wu, Fei, 2007. "The trading behavior of institutions and individuals in Chinese equity markets," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2695-2710, September.
    8. Geweke, John & Meese, Richard & Dent, Warren, 1983. "Comparing alternative tests of causality in temporal systems : Analytic results and experimental evidence," Journal of Econometrics, Elsevier, Elsevier, vol. 21(2), pages 161-194, February.
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