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Sticky prices or economically-linked economies: the case of forecasting the Chinese Stock Market

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journal contribution
posted on 03.03.2017, 12:00 authored by Steven J. Jordan, Andrew VivianAndrew Vivian, Mark Wohar
We explore whether economic links via trade affect aggregate Chinese stock market returns. We find that market return indices from countries that China net imports from can forecast the Chinese aggregate market return at the weekly time horizon. The stock returns of countries that China net exports to have no consistently significant OOS predictability. The economic intuition for our results follows from the fact that China has positioned itself as a low-cost provider competing on price. As a low-cost provider China has a more difficult time passing cost increases through to export customers because of sticky prices. However, import costs, e.g., raw materials, are subject to both consumption and speculative demand and thus vary. We can conclude that costs will drive short term economic gains for the overall Chinese economy. One interpretation of our results is that supply shocks are absorbed within 2 weeks.

History

School

  • Business and Economics

Department

  • Business

Published in

Journal of International Money and Finance

Volume

41

Pages

95 - 109

Citation

JORDAN, S.J., VIVIAN, A. and WOHAR, M.E., 2014. Sticky prices or economically-linked economies: the case of forecasting the Chinese Stock Market. Journal of International Money and Finance, 41, pp.95-109

Publisher

© Elsevier Ltd

Version

SMUR (Submitted Manuscript Under Review)

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Publication date

2014

Notes

This paper was submitted for publication in the Journal of International Money and Finance.

ISSN

0261-5606

Language

en