Do Macroeconomic Structural Changes Occur in China's Stock Markets?

Abstract

Using a rolling regression approach with varying independent variables, this paper investigates macroeconomic structural changes in the four main stock markets in China and identifies the threshold values of structural changes. Macroeconomic structural changes frequently occur on the Shanghai stock exchange, but only rarely on the Shenzhen stock exchange. In addition, five vertical threshold values are identified for the rate of change in the exchange rate (0%), the rate of change in the consumer price index (25.6%), the rate of change in the industrial production (13.5% and 15%), and the interest rate (10.98%). These threshold values imply that the effect of fluctuations in the renminbi on China's stock markets might be contingent upon different rates of change in the exchange rate, in the consumer price index, in the industrial production, and in the interest rate. Moreover, greater economic growth is not always reflected in the prosperity of the stock market. Higher growth in the price level may have a negative rather than a positive impact on economic growth.