Economy barometer analysis of China Stock Market:A dynamic analysis based on the thermal optimal path method

Abstract

The real economy is closely related to the fictitious economy.The dynamics of stock market and economy interact with each other since the stock market is an important part of the fictitious economy.The relationship between stock market and macro-economy is nonlinear and dynamic,which is hard to quantify using conventional econometric tools.In this paper,the thermal optimal path method borrowed from Econophysics is adopted and improved to investigate the dynamic lead-lag structure between Shanghai Stock Exchange Composite(SSEC) index and the GDP of China.No lead-lag structure between SSEC and GDP is detected before 2002.In contrast,the SSEC is found to lead the GDP by about two quarters after 2002 at the significance level of 5%,which is validated by a two-sided bootstrap statistical test.The findings indicate that the Chinese stock market has been gradually acting as the barometer of the economy since 2002.