Stock prices and demand for money in China

New evidence

Ahmad Zubaidi Baharumshah, Siti Hamizah Mohd, Marial Awou Yol

    Research output: Contribution to journalArticle

    13 Citations (Scopus)

    Abstract

    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.

    Original languageEnglish
    Pages (from-to)171-187
    Number of pages17
    JournalJournal of International Financial Markets, Institutions and Money
    Volume19
    Issue number1
    DOIs
    Publication statusPublished - Feb 2009

    Fingerprint

    China
    Stock prices
    Demand for money
    Money demand
    Income elasticity
    Short-run
    Misspecification
    Inclusion
    Long-term relationships
    Substitute
    Interest rates
    Demand function
    Real income

    Keywords

    • Cointegration test
    • Real M2 money demand

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Finance

    Cite this

    Stock prices and demand for money in China : New evidence. / Baharumshah, Ahmad Zubaidi; Mohd, Siti Hamizah; Yol, Marial Awou.

    In: Journal of International Financial Markets, Institutions and Money, Vol. 19, No. 1, 02.2009, p. 171-187.

    Research output: Contribution to journalArticle

    Baharumshah, Ahmad Zubaidi ; Mohd, Siti Hamizah ; Yol, Marial Awou. / Stock prices and demand for money in China : New evidence. In: Journal of International Financial Markets, Institutions and Money. 2009 ; Vol. 19, No. 1. pp. 171-187.
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