The Influence of the Economic Variables on the Chinese B-Share Markets

Abstract

This paper analyzed how economic variables affect the Chinese B-share market. For this purpose, we investigated the monthly data of major economic variables (consumer price index, imports and exports volume, money supply, real estate index and retail sales volume) and B-share price index of Shanghai and Shenzhen Exchange of China from 2009 to 2019 by employing the multivariate VAR-GARCH-BEKK model. We measured the return spillover effect between Chinese major economic variables and B-share market index from the estimation results of VAR conditional mean equation, and volatility spillover effect between the economic variables and B-share index from the estimation results of GARCH-BEKK conditional variance equation. From these results, we investigated whether there is any difference between the Shanghai and Shenzhen Exchange markets. The main findings are as follows. First, the return spillover effect does not exist in both markets except the Consumer Price Index (CPI). Second, there is the volatility spillover effect between economic variables and Shenzhen B-share market, implying that the volatility spillover effect is more important than the return spillover effect in the Chinese B-share market. Third, compared with Shanghai, the change of the Shenzhen stock market is more affected by the change of economic variables. These findings have some important policy implications. First, investors in Chinese stock market need to make good use of the information inherent in China’s economic changes to increase returns and reduce investment risks. Second, the investors should pay close attention to the overall trends of the Chinese economy and the global economy, not just to the trends of the Chinese market.