Stock returns and economic forces-An empirical investigation of Chinese markets

This study finds evidence that a better macroeconomic climate and an improvement in liquidity help to explain Chinese stock returns. There is no evidence to support the hypothesis that growth in dividend yields can predict stock returns. The sectoral stock returns in China's markets are correlated with stock returns in the US markets as evidenced by: (i) a positive correlation with US stock returns; (ii) a significant negative error correcting term; (iii) a negative response of Chinese stocks to financial stress in the US market; and (iv) a positive correlation with a depreciation in the China/US exchange rate. (C) 2016 Elsevier Inc. All rights reserved.