Divergent Market Efficiency: the Role of GDP, CPI, and Policy Expectations in China’s Equity Market

DOI

10.2991/978-94-6463-811-0_67How to use a DOI?

Keywords

GDP growth; CPI; Inflation; Stock market volatility; Semi-efficient market

Abstract

This paper investigates the extent to which China’s equity market reflects macroeconomic fundamentals, specifically GDP growth, inflation (measured by the Consumer Price Index), and policy expectations. Drawing on regression-based analysis across multiple time frames—contemporaneous, lagged, and leading—the results reveal a notable divergence from classical market efficiency. First, China’s stock market exhibits weak contemporaneous sensitivity to GDP and CPI fluctuations, with daily and quarterly returns showing insignificant relationships (R² = 0.488 and 0.214). In contrast, U.S. equities respond strongly to lagged GDP and inflation, reflecting market efficiency. Second, China’s market demonstrates pronounced anticipatory behavior: forward-looking GDP projections yield high explanatory power (R² = 0.772), driven by policy expectations and institutional investors. These findings suggest that China’s market exhibits a unique form of selective efficiency, shaped by its institutional structure, investor composition, and the central role of policy in economic decision-making. For policymakers, integrating macroeconomic forecasts with regulatory reforms is critical to enhancing efficiency; for investors, strategies must emphasize policy foresight over-reactive analysis.

Copyright

© 2025 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

Download article (PDF)

TY  - CONF
AU  - Yao Wang
PY  - 2025
DA  - 2025/08/14
TI  - Divergent Market Efficiency: the Role of GDP, CPI, and Policy Expectations in China’s Equity Market
BT  - Proceedings of the 2025 5th International Conference on Enterprise Management and Economic Development (ICEMED 2025)
PB  - Atlantis Press
SP  - 636
EP  - 646
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-811-0_67
DO  - 10.2991/978-94-6463-811-0_67
ID  - Wang2025
ER  -