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Stock prices and demand for money in China: new evidence.


Baharumshah, Ahmad Zubaidi and Mohd, Siti Hamizah and Yol, Marial Awou (2009) Stock prices and demand for money in China: new evidence. International Financial Markets, Institutions and Money, 19 (1). pp. 171-187.


This paper investigates the relationship between stock prices and the real money demands for China within a cointegrated framework. This study reports two important results. First, test results reveal that a stable long-term relationship exists between broad money (M2) and its determinants including real income, foreign interest rate, and stock prices. Second, stock prices have a significant substitute (positive) effect on long-run broad-money (M2) demand and its omission can lead to serious misspecification in the money demand function in both the short- and long-run. Finally, we demonstrate that long-run income elasticity is not significantly different from unity with the inclusion of stock prices in the money demand equation.

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Additional Metadata

Item Type: Article
Subject: Stock - Prices - China.
Subject: Demand for money - China.
Subject: Monetary policy - China.
Divisions: Faculty of Economics and Management
Keywords: Real M2 money demand; Cointegration test.
Depositing User: Emelda Mohd Hamid
Date Deposited: 14 May 2013 03:52
Last Modified: 03 Sep 2015 03:04
URI: http://psasir.upm.edu.my/id/eprint/16849
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