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Can U.S. Stocks Reflect the Real Economy’s Change?

Author: ZhuGeHaiJing
Tutor: ChenZhiAng
School: Zhejiang Technology and Business University
Course: Finance
Keywords: Globalization MNCs Financial structure Stockmarket Deviation
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Type: Master's thesis
Year: 2013
Downloads: 1
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Abstract

With the deepening of globalization, the stock market play more visible role in a country’s economic system, how it works may often be an important impact on the real economy. In theory, the stock market is the place where allocating resources, value discovery and risk management. Stock market undertake the significant task of allocation between the social idle funds and mutual funds from real economy, so profoundly understanding the stock market operation mechanism and its impact on the real economy is increasingly becoming an important part of modern financial theory.Traditional financial theory tells us that the stock market is a barometer of the real economy, and the stock market is full of investors’ expectations of future economic prospects, the running trend of now has a guiding role in the future trends on the real economy. However, in the deepening globalization today, this phenomenon that stock market operating conditions prior to the real economy can always exist? Faced with this problem, a large number of scholars have commenced to study and achieve extensive gain. Most of these scholars have selected high-frequency data for empirical analysis to arrive at a short-term or medium term stock market and the real economy goes against the phenomenon exists, and to some extent, become more common. Yet, the field of research expands from the short-term divergence identification mainly, it’s short of long-term study on the phenomenon of stock market and the real economy deviates and achievement. At the same time, under the development of the world economy the globalization and multinational Study continues to be taken seriously. Research about this area mainly involves the meaning of globalization, the pros and cons and the impact mechanisms, as well as the multinational as the object of this particular individual in multinational economic studies and related research. Few scholars can link globalization development of transnational corporations and the phenomenon which stock market and the real economy deviates together and systematically study. This paper attempts from multinational financial perspective to interpret the stock market deviate from the support of the real economy.In order to better discuss the internal mechanism of the phenomenon which stock market and the real economy deviates from, this paper follows the theoretical logic to analyze:First, collecting the relevant economic data on the U.S. stock market and its trends in the real economy which traced back to50years ago when globalization trend began to appear, through graphical analysis method, in accordance with the development of globalization in different attainment historical range, and running descriptive analysis. Then we will ask some questions that in the context of globalization whether the deviation occurred, from what time and when become significant, more importantly what is the relationship with this phenomenon and the process of globalization. Then this paper proposed theoretical hypothesis of this phenomenon, including the traditional perspective of monetary policy, and the impact of the stock market mean reversion theory, in addition the assumptions of MNCs multinational operations and financial characteristics.When empirical analysis, this paper analyzes the correlation and Granger causality test to find out the explanation about the phenomenon of the stock market and the real economy deviated from in the long run, from the view of transnational corporations transnational business activities and its financial characteristics. On this basis, the paper will in-depth analysis of the factors affecting MNCs multinational operations and financial characteristics through panel data model under globalization.Combining above theoretical and empirical analysis, the paper provides Chinese enterprises some recommendations that how to implement the Going out strategy recommendations better. This paper argues that Chinese companies can learn from the successful experience of U.S. multinationals, actively participate in international competition, and adjust its development strategy; while Sino-US comparative analysis of the company’s financial structure, we can draw thesis that Chinese enterprises high debt management strategy becomes the execution burden in the Going out strategy.

Can U.S. Stocks Reflect the Real Economy’s Change?

Abstract

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