Author(s)

Tingting Wu and Tian Tian

Corresponding Author

Tian Tian

Abstract

China’s stock markets shrinking since the Trade Friction urges us to find out the causes during this period to reach conclusions and suggestions through regression models. A series of potential influential factors were summarized in previous studies, such as macroeconomic indicators, national fiscal status, RMB interest rates and etc.. With U.S. stock indices, LIBOR and capital inflow to Chinese stock markets being added into the model, empirical analysis was then conducted to link these factors with Chinese stock indices by partial least squares. Consequently, fixed base CPI, public fiscal income, M2, overnight SHIBOR, CNY/USD spot exchange rates, and overnight LIBOR have been proved to have explanatory power at different levels of significance in the established models. Predictions were finally drawn to help regulators implement regulation policies to better recover from the unpredictably volatilities in China’s stock markets by stabilizing interest rates, smoothing exchange rates, balancing fiscal income, strengthening monetary supply, and keeping sustainably-growing CPI.

Keywords

Influencing Factors; Chinese Stock Markets; Sino-US Trade Frictions; Partial Least Squares