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The Basic Ingredients vs. Chinese Equities. Impact of Global Commodity Prices on the Chinese stock market

Greene, Barry LU (2010) NEKM04 20101
Department of Economics
Abstract
Purpose:To determine the impact on and correlation of global commodity prices with China’s stocks, given the country’s recent GDP growth and closed domestic markets to outside investors and other outside influences.

Methodology: Representative commodities are selected to be independent variables and regressed over composite and sector indexes to determine significance of relationships.

Theory: Stock price is determined by EPS multiplied by the P/E ratio. Commodity prices will affect EPS as acquisition costs directly affect company profits. As commodity prices rise, profits fall and vice versa. Therefore an inverse relationship is expected between commodities and the Chinese stock market.

Results: Copper and Gold are correlated... (More)
Purpose:To determine the impact on and correlation of global commodity prices with China’s stocks, given the country’s recent GDP growth and closed domestic markets to outside investors and other outside influences.

Methodology: Representative commodities are selected to be independent variables and regressed over composite and sector indexes to determine significance of relationships.

Theory: Stock price is determined by EPS multiplied by the P/E ratio. Commodity prices will affect EPS as acquisition costs directly affect company profits. As commodity prices rise, profits fall and vice versa. Therefore an inverse relationship is expected between commodities and the Chinese stock market.

Results: Copper and Gold are correlated with the main composite index between 2002 to 2009. Yet, the correlation disappears when examining sector indices with data only from 2009. Soybeans and Aluminum are highly correlated for the sector indices with data from 2009, yet insignificant versus the main composite over a longer period of time.

Conclusion: Certain global commodities do influence the stock price of domestic Chinese securities. Gold, Copper, Aluminum, and Soybeans are statistically significant with regards to price movement on the exchange. (Less)
Please use this url to cite or link to this publication:
author
Greene, Barry LU
supervisor
organization
course
NEKM04 20101
year
type
H1 - Master's Degree (One Year)
subject
keywords
Commodities, Shanghai Stock Market, Price Taker, Chinese Domestic Markets
language
English
id
1627939
date added to LUP
2010-08-17 11:15:02
date last changed
2010-08-17 11:15:02
@misc{1627939,
  abstract     = {Purpose:To determine the impact on and correlation of global commodity prices with China’s stocks, given the country’s recent GDP growth and closed domestic markets to outside investors and other outside influences.

Methodology: Representative commodities are selected to be independent variables and regressed over composite and sector indexes to determine significance of relationships.

Theory: Stock price is determined by EPS multiplied by the P/E ratio. Commodity prices will affect EPS as acquisition costs directly affect company profits. As commodity prices rise, profits fall and vice versa. Therefore an inverse relationship is expected between commodities and the Chinese stock market.

Results: Copper and Gold are correlated with the main composite index between 2002 to 2009. Yet, the correlation disappears when examining sector indices with data only from 2009. Soybeans and Aluminum are highly correlated for the sector indices with data from 2009, yet insignificant versus the main composite over a longer period of time.

Conclusion: Certain global commodities do influence the stock price of domestic Chinese securities. Gold, Copper, Aluminum, and Soybeans are statistically significant with regards to price movement on the exchange.},
  author       = {Greene, Barry},
  keyword      = {Commodities,Shanghai Stock Market,Price Taker,Chinese Domestic Markets},
  language     = {eng},
  note         = {Student Paper},
  title        = {The Basic Ingredients vs. Chinese Equities. Impact of Global Commodity Prices on the Chinese stock market},
  year         = {2010},
}