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Title: Sticky prices or economically-linked economies: the case of forecasting the Chinese Stock Market
Authors: Jordan, Steven J.
Vivian, Andrew J.
Wohar, Mark E.
Keywords: China
Forecast
Import
Export
Macroeconomics
Forecast combinations
Issue Date: 2014
Publisher: © Elsevier Ltd
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
Abstract: 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.
Description: This paper was submitted for publication in the Journal of International Money and Finance.
Version: Submitted for publication
DOI: 10.1016/j.jimonfin.2013.11.001
URI: https://dspace.lboro.ac.uk/2134/24289
Publisher Link: http://dx.doi.org/10.1016/j.jimonfin.2013.11.001
ISSN: 0261-5606
Appears in Collections:Published Articles (Business School)

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