This study is to investigate the degree of long-term and short-term co-movements in the stock markets of Taiwan, Hong Kong, and China and to shed some light on the long-term and short-term market efficiency/inefficiency in the region. We observe a long-run relationship among the stock markets of Taiwan, Hong Kong, and China. Thus, three cointegrated markets reveal long-term market inefficiency in the region. The numbers of common cycles are investigated in these markets and each stock index series is decomposed into its trend and cyclical components. Next, we select macroeconomic variables such as GDP, CPI, money supply, interest rate, and exchange rate to investigate the role of these factors on the stock prices in Taiwan, Hong Kong, and China. We observe long and short term relationships between stock index and macroeconomic variables. Finally, we consider the impact from foreign stock markets and domestic macroeconomic variables and observe the influences from foreign stock markets are greater than domestic macroeconomic variables. It means that if policymakers want to pursue an independent macroeconomic policy, they concerned not only macroeconomic variables but also market integration impact.

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