In the literature, the relationship between stock price and
economic variables was examined in different countries. The findings confirmed
the existence of fundamental variables in the Hong Kong stock market. This
paper focuses on the case of Hong Kong and extends this issue to the Hang Seng
sub-indexes, which include the Commerce and Industry Sub-index, the Finance Sub-index,
the Properties Sub-index and the Utilities Sub-index, by applying the Vector
Error Correction Model based on the sample from January 2004 to August 2014.
Applying Johansen’s (1991) method, cointegration is found between each of the
sub-indexes and different sets of economic variables, including price level,
money supply, effective exchange rate, long-term interest rate, China stock
market and industry-related variables. The results show that the long-run
coefficients of some economic variables vary in size and sign in the
cointegrating vectors in different sub-index models. Granger causality results
conclude that all four sub-indexes are long-run Granger-caused by the economic
variables with different speeds of adjustment. The paper also finds that industry-specific
variables, relative to the macroeconomic fundamentals, are playing modest roles
in determining the long-run equilibrium of the stock indexes. In addition,
impulse responses and variance decomposition analysis are performed to show the
relative strength of the causal chain between the sub-indexes and economic
variables. This paper could draw implications for investors in their
decision-making process about how the stock performance in various sectors is
affected by different economic fundamentals.
Author(s)details:-
Hok-Fu Wu
Crowe (HK) Global Corporate Advisory Limited, Hong Kong.
Kai-Yin Woo
Department of Economics and Finance, Hong Kong Shue Yan University, Hong
Kong.
Please See the book
here :- https://doi.org/10.9734/bpi/mono/978-81-973195-8-7/CH5
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