Proceedings of Annual Shanghai Business, Economics and Finance Conference
3 - 4 November 2014, Shanghai University of International Business and Economics, Shanghai, China
ISBN: 978-1-922069-63-4
The Co-Movement of Stock Return and Economic Growth:
Evidence from US and China
Jia Shi and Yu Jiang*
The performance of stock market has been regarded as the barometer of
economic growth and the stock return and the economic growth are believed to
co-move. As the co-movement of stock return and economic growth plays an
important role in the process of macroeconomic policy-making and the
microcosmic investor's decision-making, it is meaningful to know more about
the characters of the co-movement. The co-movement may be influenced by
huge financial and economic shock or can vary in different economic systems
and economic development modes. In this paper, two countries (US and China)
under two entirely different economy systems (free-market economy system
and socialist market economic system) are chosen as the case studies to
conduct comparative analysis and thus to test weather difference exists in the
co-movement under different economic system. Unlike previous research which
has mostly focused on constant relationship between the stock return and
economic growth, a time-varying copula model has been applied to elaborate
the dynamic correlations. The fluctuation of co-movement in different periods
has been observed. The empirical results of our study indicate that the
co-movement is much weaker in China than in the US in the long run.
Furthermore, during huge financial shocks such as during the financial crisis of
2008, the co-movement in US may drop significantly and the correlation even
became negative. Potential reasons have been addressed for explaining these
phenomena.
*
Department of Finance and Insurance, Nanjing University, Nanjing, Jiangsu 210093, P.R. China; Email:
evashijia@gmail.com (S. Jia), yujiang@nju.edu.cn (Y. Jiang).