This paper, based on the relationship between the economy, policy and the financial market seeks to explore the leading force in China\u27s stock market and identify how the government policies affect the stock market, through an analysis of the performance of the Shanghai Stock Exchange Index over the past 10 years. Comparing the stocks\u27 intrinsic value to their market price can present an aerial view of China\u27s stock market. When the market prices deviated from fundamentals, we can find what government did to respond to the market and lead market opinions.
Through our estimation, comparing the sample fundamental prices with the sample market prices, the market prices are consistent with fundamentals, besides the boom and bust in 2008 and 2015. Beyond fundamentals, we also looked at another three determinants of stocks\u27 prices: speculation, government intervention through policy or open market trading, and the capital flows or international hot money. Our main finding is that fundamentals are still a core determinant in China\u27s Stock Market
