Do Macroeconomic Variables Play any Role in the Stock Market Movement in China: Evidence from VAR Analysis

In this study we examine the relationship between macroeconomic variables (GDP, money supply, exchange rate, interest rate) and stock market index in China. The period of the study is from Jun.2005-Dec.2008. During this period, China stock market experienced an amazing rising and also a horrifying crash. We find that there is a long-run equilibrium relationship between the stock index and the selected macroeconomic variables. Using VAR model, we get to the conclusion that exchange rate, money supply and GDP positively affect the stock index, while interest rate negatively affects the stock index.