Is There a Relationship Between Stock Market Returns and Consumer Confidence in China?
Keywords:
Consumer Confidence, Financial Market, Stock Returns, Market Index; Economic Data, Financial Relationship, Statistical Test, China, Empirical Research, Quantitative Analysis, Interest RateAbstract
This study mainly explores whether there is a short-term dynamic relationship between China’s stock market returns and consumer confidence. The focus is on the interaction between the Hang Seng Index (HSI) and the China Consumer Confidence Index (CCI), and the analysis is carried out using classical economic theories such as wealth effect theory and behavioral finance as auxiliary tools. This paper will use monthly data from 2005 to 2024, and gradually adopt the vector autoregression (VAR) model and Granger causality test to identify the causal relationship between variables and possible response dynamics. The empirical results show that the Hang Seng Index returns do have a significant short-term impact on changes in consumer confidence, but unfortunately the returns of the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) do not show similar significant effects. The study will further point out that the performance of the Hong Kong market is more immediate and sensitive, which means that as a special financial and economic component of China, the Hong Kong market has a unique role and plays a key role in reflecting macroeconomic sentiment. This paper fills the gap in the study of the interaction between stock market returns and sentiment in the Chinese market, and these empirical evidences also have important practical policy significance. And in the future, it will help to optimize the prediction model and formulate stabilization strategies. Finally, this study also discussed the limitations of the research and possible future research directions.
References
Asteriou, D. and Hall, S.G., (2007). Applied Econometrics: A Modern Approach Using Eviews and Microfit. Revised Edition. New York: Palgrave Macmillan.
Baker, M. and Wurgler, J., (2007). Investor sentiment in the stock market. Journal of Economic Perspectives, 21(2), 129–151.
BBC News. (2025). Trump tariffs: Worst week for US stocks since Covid crisis, BBC, May 2025. Available at: https://www.bbc.com/news/ (Accessed: 22 May 2025).
Bekaert, G. and Wu, G., (2000). Asymmetric volatility and risk in equity markets. The Review of Financial Studies, 13(1), 1–42.
Case, K.E., Quigley, J.M. and Shiller, R.J., (2005). Comparing wealth effects: the stock market versus the housing market. Advances in Macroeconomics, 5(1), Article 1.
Chen, N.F., Roll, R. and Ross, S.A., (1986). Economic forces and the stock market. Journal of Business, 59(3), 383–403.
Chen, W., (2010). ‘Stock market returns and urban consumer behavior in China. China Economic Review, 21(1), 27–40.
Chamon, M., Liu, K. and Prasad, E., (2013). Income uncertainty and household savings in China. Journal of Development Economics, 105, 164–177. Available at: https://doi.org/10.1016/j.jdeveco.2013.07.009.
CNN Finance, (2025). US consumer sentiment plummets to second-lowest level in history, CNN Business, May 2025. Available at: https://edition.cnn.com/ (Accessed: 22 May 2025).
Fratzscher, M., (2012). Capital flows, push versus pull factors and the global financial crisis. Journal of International Economics, 88(2), 341–356.
Gu, S., Kelly, B. and Xiu, D., (2020). Empirical asset pricing via machine learning. The Review of Financial Studies, 33(5), 2223–2273.
Jansen, W.J. and Nahuis, N.J., (2003). The stock market and consumer confidence: European evidence. Economics Letters, 79(1), 89–98.
Lai, K.P.Y., (2012). Differentiated markets: Shanghai, Beijing and Hong Kong in China’s financial centre network. Urban Studies, 49(6), 1275–1296.
Lemmon, M. and Portniaguina, E., (2006). Consumer confidence and asset prices: Some empirical evidence. Review of Financial Studies, 19(4), 1499–1529.
Li, H., Ma, X. and Xu, J., (2016). Stock market wealth effect on household consumption in China: Evidence from panel data. Emerging Markets Finance and Trade, 52(7), 1609–1620.
Otoo, M.W., (1999). Consumer sentiment and the stock market. Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System.
Wu, J. and Zhang, L., (2016). The impact of financial openness on China’s economy: Evidence from stock market. International Review of Economics & Finance, 45, 410–425.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 Yi He
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
