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Relationships among Energy Price Shocks, Stock Market, and the Macroeconomy: Evidence from China

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  • Cong, Rong-Gang
  • Shen, Shaochuan

Abstract

This paper investigates the interactive relationships among China energy price shocks, stock market, and the macroeconomy using multivariate vector autoregression. The results indicate that there is a long cointegration among them. A 1% rise in the energy price index can depress the stock market index by 0.54% and the industrial value-adding growth by 0.037%. Energy price shocks also cause inflation and have a 5-month lag effect on stock market, which may result in the stock market “underreacting.” The energy price can explain stock market fluctuations better than the interest rate over a longer time period. Consequently, investors should pay greater attention to the long-term effect of energy on the stock market.

Suggested Citation

  • Cong, Rong-Gang & Shen, Shaochuan, 2013. "Relationships among Energy Price Shocks, Stock Market, and the Macroeconomy: Evidence from China," MPRA Paper 112211, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:112211
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    Keywords

    Oil price; Stock market;

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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