Comparison of Macroeconomic Factors Explanatory Power Between Chinese and Swedish Stock Market

Abstract: In order to seek the difference between Chinese and Swedish stock market, this thesis makes a comparison of explanatory power of macroeconomic factors between the stock markets in respective country. The vector autoregressive (VAR) models are implemented to analyze the relationship among the market returns and macroeconomic variables, i.e., GDP, CPI, exchange rate, unemployment rate and interbank offered rate in China and Sweden. The empirical result illustrated that Chinese stock market is more sensitive to the changes of macroeconomic variables than Swedish stock market. To make a clear interpretation for the estimation result, impulse responses functions and variance decompositions are applied to support the empirical test. Moreover, we analyzed the potential reasons that may cause the differences between Chinese and Swedish stock markets.