Consumption and stock markets in Greater China

Abstract

This study investigates the causal links between stock market performance and consumption for Greater China using a VECM framework. Bi-directional causality between stock prices and consumption is found for Hong Kong and Taiwan. This indicates that the previous studies may have overestimated the wealth effect of stock markets without taking account of the reverse causation from consumption to the stock markets. Only one-way causality running from consumption to stock prices has been established for Mainland China.

Acknowledgements

An earlier version of this paper was presented at the 14th Annual Conference of the Chinese Economic Association (UK), London, April 2003. The authors thank participants for their helpful comments. The usual disclaimer applies.