The Relationship between Stock Returns and Macroeconomic Variables: A Study of Beverage and Food Companies Listed on the Shenzhen Stock Exchange, China

Abstract

The securities market in China is one of the world’s most promising emerging markets. It played a significant role during the 2008 economic crisis. As a result, how to grasp good investment opportunities in the stock market has become a heated topic. With this background in mind, the researcher conducted an empirical test using time series data methodology to study the relationship between macroeconomics and stock returns. This paper is based on the index of the Beverage and Food Industry issued by the Shenzhen Stock Exchange (SSE) from 2005 to 2009 (monthly data was collected over a 60-month period). It focuses merely on the Beverage and Food industry returns and looks at nine macroeconomic variables, namely, money supply (M2), inflation rate (CPI), foreign exchange reserves, raw oil price, industrial production index, import rate, export rate, gold price and consumers’ confidence index. On the basis of the multiple regression analysis (OLS) carried out by Eviews 5 program, the results show that three independent variables—foreign exchange reserves, gold price and consumer confidence index, all have a significant positive relationship with stock returns at Sig. 5% and Sig. 10% levels. It is thus suggested that these three independent variables be the “new pecking order” for stock returns of the Beverage and Food firms listed on the SSE.