Macroeconomic factors and stock markets interdependencies: Evidence from United States and China

Abstract

Over the past few decades, the stock markets of China and United States have shown rapid growth in terms of value and volume, bringing investment opportunities and significant capital inflows in these two countries. This paper investigates the dependency and interdependency of macroeconomic factors and stock markets in the United States and China. Auto-regressive Distributed Lag (ARDL) approach is implemented in this study to investigate the long term and short term impact of the macroeconomic factors against the stock markets in China and the United States. The analysis considered Dow Jones Industrial Average Index, NASDAQ Composite Index and S&P 500 Index, Shanghai Composite Index (SSE) and Shenzhen Stock Exchange Index (SZSE) as the stock market in the United States and China. Macroeconomic factors in these two countries such as consumer price index, export, interest rates, money supply, real effective exchange rates, total reserves, gold price and crude oil price are considered in this study. In conclusion, ARDL approach shown that the export value, money supply, real effective exchange rate in the United States and the gold price were the determinant factors to the stock market in United States. The SSE and SZSE markets are found to have long term and short term relationship with the macroeconomic factors in the United States. Lastly, the SZSE market is influencing by the China macroeconomic factors such as China CPI and China real effective exchange rate in long term and short term.