Dynamic Linkages between Stock Market Volatility and Macroeconomic Variables: Empirical Evidence Based on China

Abstract

This paper investigates whether dynamics in key macroeconomic indicators in China significantly explain stock returns. The dataset covers the period from January 1996 to December 2006. Using the impulse response, the study finds that in terms of magnitude, persistence, and significance, the transmission of shocks emanating from industrial production and money supply to stock market are more pronounced than the ones originating from the other macroeconomic variables. These findings may have important implications for decision-making by investors and national policymakers.