forecast Chinese stock market return

Independent variables are:

Chinese economic variables are as follow:

● China_Turnover, the ratio of trading volume to total number of share outstanding for A-share stocks listed in Shanghai and Shenzhen stock exchanges.

● China_SIR, China short-term interest rate

● SMB, (small cap minus big cap) market value factor for Chinese stock market

● HML,(high B/M minus low B/M) Book to Market (B/M) factor for Chinese stock market

● RMW,(robust minus weak) profitability factor for Chinese stock market

● M0： current money supply (money in circulation)

● M1: M0 plus current deposit

● M2：M1 plus fixed term deposit

● China Inflation, INF: calculated according to the CPI published by the China National Bureau of Statistics. Following Welch and Goyal (2008), since the inflation rate data are released in the following month, we use the lagged two-month inflation in regression.

● Earnings-price ratio (log), E/P: the difference between the logarithm of earnings and that of prices on all A-share stocks listed in Shanghai and Shenzhen stock exchanges, where earnings are measured using a one-year moving sum.

● Book-to-market ratio (log), B/M: the difference between the logarithm of book value and that of market value for A-share stocks listed in Shanghai and Shenzhen stock exchanges.

US economic variables

• USA investor sentiment

• Long-term yield, US_Bill: long-term government bond yield.

Long-term return, LTR: return on long-term government bonds.

• Inflation, INFL: calculated from the CPI (all urban consumers); following Goyal and Welch (2008), since inflation rate data are released in the following month, we use lagged two month in regression.

• Earnings–price ratio (log), E/P: difference between the log of earnings on the S&P 500 index and log of prices, where earnings are measured using a one-year moving sum.