Hot Money and Stock Market in China: Empirical Evidence from ARDL and NARDL Approaches

Abstract

This study discusses the relationship between hot money and stock market in China by employing the Autoregressive Distributed Lag (ARDL) and Nonlinear Autoregressive Distributed Lag (NARDL) methods. The data used in this study is quarterly data over the period 2000: Q1 to 2017: Q4. The results show that oil price, economic growth and hot money possess a long-run relationship towards stock market in China, whereas, no effect is found from inflation. The oil price and economic growth are both positively related to stock market while there is a negative relationship from hot money. Furthermore, the study supports the existence of an asymmetric effect between hot money and stock market. The findings imply that policymakers should form better monitoring systems to control the inflow of hot money, thus, strengthening investors’ confidence and avoiding unwanted bubbles in China’s stock market.