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Macroeconomic News Announcements, Market Expectations and the Chinese Stock Market

Author: ZuoChengKai
Tutor: WangYingGui
School: Nanjing University of Finance and Economics
Course: Finance
Keywords: Macroeconomic indicators Expectations Stock Market EGARCH
CLC: F123.16;F224
Type: Master's thesis
Year: 2011
Downloads: 121
Quote: 0
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Abstract


Along with the development of the stock market, the interrelationship between economy and stock market has gained importance. Decision makers and market participants are paying attention to the impacts on financial markets of public announcements of macroeconomic indicators, especially on return and volatility. As the deepening of China’s economy opening-up, it is not far that foreign capital to enter the a-share market. So studying on the effects of macroeconomic indicators on Chinese stock market of the returns and risks is very meaningful.This paper uses EGARCH to evaluate the effects of surprises in seven types of macroeconomic announcements on the return and volatility of the Chinese stock market. We first examine the short-term response of the Chinese stock market to the information surprises of the public announcements of domestic macroeconomic indicators by ignoring market expectations. Then, we employ a modified EGARCH model including market expectations to map the links.Our results suggest that stock markets do not respond in any meaningful way to the act of releasing information by the government, Rather, it is the“news”content of these announcements which cause the market to react. For Chinese stock market, among the news releases considered significant, fixed investment, money supply, international trade balance, CPI and PPI have the greatest influence.According to the above research conclusion, policy makers should improve decision making art by paying attention to the expectations and leading the market participants’ expectations reasonable. Investors can accord the“news”content of these macroeconomic indicators to reallocate their portfolio accordingly in order to manage value and risk.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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