International Journal of Business and Economics Volume 8, No. 3 December, 2009

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

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.

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)—and its departure from a "healthy level" (EPS-D)—and composite indexes for Chinese securities markets—Shanghai 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.

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

JEL Classifications：G15, G17, F21.

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