Is the Stock Market a Reliable Indicator of the National Economy? -- Empirical Analysis According to Chinese Data

Abstract

Based on Chinas economic data from 1992 to 2021, this essay employs the unitary linear regression model to investigate the effect of the Shanghai Composite Index on per capita GDP and carries out heterogeneity analysis from the perspective of different bank types. This paper concludes that the stock market in China has the function of a barometer. Based on different industries, the Chinese stock markets capacity as a barometer is effective in different industries, but Chinas stock market has the greatest effect on the tertiary industry, the second industry, and the least effect on the primary industry. Based on the expenditure approach, Chinese stock markets use as a barometer is effective for different components of GDP, but the effect of Chinas stock market on net exports of products and services is the largest, followed by government consumption and input-output ratio, and the effect on household consumption is the least. Based on the consideration of timing, the Chinese stock markets ability to serve as a barometer only took effect before the outbreak of the substandard goods crisis in 2008 and failed after the outbreak of the crisis.