How Does the Buffett Indicator Work in China?

• Main Author: Gao, Ruixue
• Format: Others
• Published: Digital Commons @ East Tennessee State University 2020
• Subjects: Chinese stock market; Shanghai Index; Buffett Indicator; composite model; P/E ratio; Finance and Financial Management
• Online Access: https://dc.etsu.edu/honors/543; https://dc.etsu.edu/cgi/viewcontent.cgi?article=1687&context=honors

This study investigates whether the Buffett indicator can be used to make investment decisions in China. The investigation has two approaches. First, this study determines the scaling relationship between the Buffett Indicator and the GDP in China. Previous research and findings in this research regarding the scaling relationship can help international investors when comparing China with a different country as potential investment opportunities. Second, this study also examines whether the Buffett Indicator, the P/E ratio and composite models including the Buffett Indicator can be used as tools for international investors in predicting the Shanghai Index and making investment decisions for the Chinese stock market. The analysis is based on Chinese data from the World Bank, the National Bureau of Statistics of China, the Federal Reserve and the Yahoo Finance. This study finds that there is a sublinear relationship between the Buffett indicator and GDP in China and that the composite models which include the Buffett Indicator perform better to forecast the stock market in China than other indicators.