1.2 Objectives of the Research Study

More precisely， the objective of the book is to empirically investigate the predictability of equity market performance （both equity market downturns and equity market returns） in China while accounting for structural instability using data on three equity market indices， i.e. the SHA， the SHC and the SZC， and candidate predictor variables under macroeconomic， sentiment and technical categories. The time periods involved are the period February 2002 （02.2002） to May 2010 （05.2010） when equity market downturn predictability is examined and the period January 1993 （01.1993） to May 2010 （05.2010） when equity market return predictability is investigated. The specific research objectives are proposed as follows：

• To explore the forecasting ability of predictor variables on both equity market downturns and equity market returns in China.

• To test if the predictability can be utilised to formulate successful market timing strategies which aim to predict equity market peaks and troughs in order to outperform the market.

• To examine whether a forecasting model’s statistical performance is informative for the model’s economic value.

• To investigate the presence， the occurrence and the importance of structural breaks in terms of forecasting equity market downturns and equity market returns.

• To compare the performance of the Shanghai and the Shenzhen markets and the ability of the candidate forecasting models across the two markets.