Research On Monetary Policy And The Price Behavior In Stock Market

The transmission mechanism of monetary policy is an important problem of themonetary policy theory. The appearance of stock market brings one of the greatestchallenges of the traditional money transmission mechanisms. In fact, the stockmarket channel of monetary policy is composed of two steps, those are how monetarypolicy pass to stock market and how stock market affect the real activity. As the firststep in the stock market channel, the interaction between stock price behavior andmonetary policy is very important, because it is not only crucial for the transmission,but also is significant for the monetary authorities decision. However, the studies about monetary policy and price behavior in stock marketare relax. This could perhaps be explained by the fact that the subject lies between thefields of monetary economics and financial economics. The approaches excessivelydevoted to some field, to some extent, restrict the evolution of research. This paper,based on the literatures in existence, makes thoroughly and systemically research onChinese monetary policy and stock price behavior. The main contents and conclusionsare as follows:(1)Applying the econometric method , the paper studies whethermonetary policy has effect on stock return and volatility. The results shows Chinesemonetary policy seems to exert an influence on stock prices, but the same monetarypolicy indicators affect differently during the respective periods. (2) Studyingempirically the influence mechanism between monetary policy and stock price, wefind that the changes of Chinese monetary policy, firstly, have effect on the money inbank and further on stock returns and volatility. (3) By dividing monetary policyannouncements into scheduled monetary policy announcements and unscheduledmonetary policy announcements, we employ the empirical method to analyze therespective announcement effect. The result shows Chinese monetary policyannouncements have announcement effect, but the scheduled announcements differfrom the unscheduled ones in some way. There is the potential "new effect" not the"pre-announcement effect" for the scheduled announcements and the market is easy tosuffer from speculating when facing the unscheduled announcements. (4) Usingintraday data to study the schedule monetary policy announcements, we discover thatstock price can rapidly adjust according to the new information. At last, the paperbrings forward some policy suggestion for monetary authority on whether targetingstock price and monetary policy disclosure.