The Dynamic Relationship between Macroeconomy and Stock Market in China: Evidence from Bayesian Network

Yue Liu,Kun Guo,Haoyuan Feng,Mariya Gubareva

doi:10.1155/2021/2574267

Abstract

As the most important component of the capital market, the stock market has always been regarded as the “barometer” of the macroeconomy. However, many researchers have found that the stock market and macroeconomy are operating separately. This paper uses the dynamic Bayesian network method to study the dynamic relationship between the Chinese macroeconomic system and the stock market. The study found that the correlation between the macroeconomic system and the stock market is not consistent in different time periods. For most of the time, the stock system and the macroeconomic system are relatively independent. However, several macroeconomic factors such as Purchase Management Index could affect the stock market through some industries. A conclusion is drawn that the “barometer” function of the stock market is weak and easy to be damaged by factors such as the irrational sentiment of investors.

Highlights

Researches on the causal relationships between the macroeconomy and the stock market have been taken by many researchers since Schumpeter [1] proposed the role of the financial market in improving productivity and economic growth. e financial market has played an increasingly important role in risk management and resource allocation for the entire economic system. e Chinese stock market was established in the 1990s
Method, the Bayesian network at a certain time presents the average structure in the past periods, it reveals some useful messages about the macroeconomy system. e separate networks shown in Figure 1 declare that the attempt to use macroeconomy information to invest in the stock market will not bring the investors excess earnings
E general Bayesian network indicates that the macroeconomy and the stock market operate independently

Summary

Introduction

Researches on the causal relationships between the macroeconomy and the stock market have been taken by many researchers since Schumpeter [1] proposed the role of the financial market in improving productivity and economic growth. e financial market has played an increasingly important role in risk management and resource allocation for the entire economic system. e Chinese stock market was established in the 1990s. Researches on the causal relationships between the macroeconomy and the stock market have been taken by many researchers since Schumpeter [1] proposed the role of the financial market in improving productivity and economic growth. E financial market has played an increasingly important role in risk management and resource allocation for the entire economic system. E Chinese stock market was established in the 1990s. With the development of China’s reform and opening-up process, the size of the stock market is expanding [2]. E stock market has increasingly become an important platform for the market-oriented allocation of China’s economic resources, broadening external financing channels for enterprises. Looking at China’s economic development process, it can be found that its long-term stable growth trend and the stock market’s fluctuation trend show huge inconsistency. Some previous studies believed that the development of the macroeconomy dominates the degree of volatility of the stock market, and the stock market can be used as a “barometer” of the national economy to predict the future trend of the macroeconomy

Methods

Results

Conclusion