The Research On Financial Safety Based On Asset Prices

Financial system was founded as development of economy, and has been one of the most important parts of economic system in human society. Stabilization and safety of financial system is very important to improvement of the whole social economy. From all previous financial crisis people had felt its damage to economy of a country. Therefore, at present people pay more attention to financial safety. Capital market provides not only a direct and efficient financing place for enterprises but also more investment channels for investor, and in the meantime the capital market is also important ports of financial system. As occurrence of the capital market, financial deal increasingly put up different characteristic in comparison with real economy. And then it still has very significant influence on real economy. Assets price is the most direct signal of the capital market operating. But assets price in the capital always suffers from the process that assets price bubbles increasingly swell and then are broken. The paper will researches what big fluctuation of assets price creates influence on financial safety of a country.Firstly, the paper defines financial safety, and analyzes related factors which may influence on financial safety. The factors include frangibility of banking itself and financial market, financial innovation and financial liberalization and so on. The second, the paper analyzes microcosmic basis of asset prices bubbles and characteristic of the capital market of China. According to the heterogeneous positive feedback trading model of the paper, speculative trading of the rational speculative trader is the basis of occurrence of assets price bubbles in the capital market. The positive feedback trader adds fuel to the fire to swell of the bubbles. Improvement of analyzing capacity of the whole positive feedback trader doesn't ensure them to make a profit from the speculative deal. Finally, burst of the bubbles will be inevitable as irrational swell of asset prices. Enhancing transparency and impartiality of the capital market and coping with bubble tendency of asset prices are the effective measurement which controls the speculation and the asset prices bubbles. Empirical analysis shows from views of listed companies and investors in the capital market that there are overfull speculative action in the capital market of China. The third, empirical analysis on operating status of banking system in China finds that operating efficiency of banking of China is improving increasingly as banking system becoming more market-oriented. It indicates developing tendency of banking in the future. But market-oriented banking system will face more finance shocks. The shocks may bring financial crisis. Farther analysis also shows that swell of asset prices may make bank credit scale expand excessively. So, it is inevitable for burst of asset prices bubbles to lead to loss of bank credit. Financial crisis will break out under the condition. Thus, the diffusing channel from asset prices bubbles to financial safety is from swell of assets price to expand of bank credit scale, to burst of asset prices bubbles and to financial safe. The finally, under the condition of finance opening to outside, there is more complicated relation between asset prices and financial safety. The relation will be influenced by not only domestic factors but also international factors. The paper set up a VAR model including asset prices, bank credit, short-term international capital flow and interest rate to analyze relative infection between them under the present condition and influence of the factors on financial safety. The result shows that bank credit funds and short-term international capital flow aren't main factors to lead to swell and burst of assets prices of China at present. Lately, burst of asset prices in China doesn't influence seriously on financial safety pf China. Part reasons are because of relative closing of the capital market in China and strong government control on bank system. But in fact the both factors also disclose bugs of finance system of China. They may bring some negative effect on efficiency improvement of bank system of China. In the future, under more market-oriented condition and on the basis of international experience in the past how to cope with assets price bubbles will be a severe task.