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

Abstract EN

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.