Complex Relationship Between Stock Price and Macro―Economy Based on Structural E
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[a]Economics School， Beijing Wuzi University， Beijing， China.
*Corresponding author.
Received 12 March 2014； accepted 10 July 2014
Published online 15 September 2014
Abstract
Studying China’s stock market from a macroeconomic perspective has very important theoretical and practical significance. In the theoretical level， it can deepen our understanding of the field； but it can improve the investment combination of performance and increase our investment optional time reliability in the real level. This paper strikes up influence path diagram based on using the existing empirical research conclusion， and gets its path coefficient and the causal path diagram using the ML， ADF and GLS method. After the statistical significance test， we think the casual relationships of China’s stock market as followed can be accepted： firstly， the year-on-year increase of M1 will cause the rise of Shanghai index； secondly， the year-on-year increase of PPI will cause the decrease of Shanghai index； thirdly， the year-on-year increase of M2 will cause the decrease of Shanghai index； finally， the appreciation of the RMB will cause the increase of Shanghai index at last.
Key words： complex relationship； China’s stock price； Macroeconomic variable； Structural equation model
Huo， Z. Q.， & Yin， J. N. （2014）. Complex Relationship between stock price and macro-economy based on structural Equation Model. Management Science and Engineering， 8（3）， -0. Available from： URL： http：///index.php/mse/article/view/5373
DOI： http：///10.3968/5373
INTRODUCTION
Managing the risk of the stock market is very important for the sustainable development of the financial system. In 2008， the global financial crisis has brought serious trauma to the world economy， which still did not heal. And the causes of the crisis were related with excessive financial innovation and the lack of supervision. Risk management is the process of risk identification， risk evaluation and risk management. Risk management can provide useful information to predict market risk， such as stock market variables， stock price， and macroeconomic situation and so on. The systematic risk management， researching the influence path of the macroscopic variables to the stock price is indispensable.
There are at least four important practical significances to understand the stock market in the macroeconomic perspective. a） It can improve the performance of the portfolio. If we understand the relations between the stock market rate of return and macroeconomic， we can buy more stock when the macroeconomic stage is beneficial to the stock market， vice versa. b） It can increase the success possibility in selecting the investment opportunity. At present， there are three schools in the stock market， which are fundamental analysis， industry and company analysis， and technical analysis. Among them， the fundamental analysis belongs to the category of opportunity election， industry and company analysis belongs to the category of choosing category， technical analysis belongs to the category of choosing. From the perspective of optional time， researching the influence of macroeconomic trends to the stock market is indispensable. c） About the complicated relationship between stock prices and the macroeconomic variables， there have been unable to come to an agreement at home and abroad. This paper can draw a conclusion of relative certainty using the tool of structural equation， which can be data validation. d） It can avoid the extreme means in macroeconomic regulation and control， which can avoid some adverse effects on economic.
Until now， many scholars have studied the complexity relationship between the stock price and the macro economy， but none of them have been unable to draw a deterministic conclusion. In addition， much of the existed research ignored the complicated relationship between them. In view of this situation， this article tries to make some innovation about the research methods and idea， hoping to draw a of relative certainty conclusion.
1. THE MAIN MACROSCOPIC FACTORS ON STOCK PRICE INFLUENCE
1.1 The Influence of Money Supply
The theory relationship between Stock prices and monetary supply includes two aspects. Firstly， how the money supply influence the stock prices. Money supply can influence the stock prices in three ways， including the expected effect， investment combination effect and stock intrinsic value growth effect. All the three effect in general are positive， which means that the stock market prices will increase when the money supply increases. Secondly， the stock market price can influence the money supply. Stock price can influence the money supply in two ways， including the wealth effect， transaction effect， asset portfolio effect and substitution effect. Among them， the wealth effect， transaction effect， and asset portfolio effect has positive influence， the substitution effect has negative influence， so the impact of share price change on the money supply is uncertain in theory. Yu （2011） used GARCH model studied the effects of selected macroeconomic variables on the stock market index in South Africa. It finds that South Africa’s stock market index is positively influenced by the growth rate of real GDP， the ratio of the money supply to GDP and the U.S. stock market index and negatively affected by the ratio of the government deficit to GDP， the domestic real interest rate， the nominal effective exchange rate， the domestic inflation rate， and the U.S. government bond yield.
1.2 The Influence of Economic Growth
So far， there still exists dispute between the relationships of stock price and economic growth in theory and empirical. Friedman did an empirical analysis of the influence of stock price to inflation and output effect of the United States for a relatively long period of time， and the results show that the effect was not significant. One study of the research group of the people’s bank of China shows that， the influence of stock price to the macroeconomic would become more prominent with the development of the stock market and financial innovation， but the role of stock market in the monetary policy transmission was still quite small.