The Investigation Between Inflation And Asset Price

There have been dramatic fluctuations in property prices in the world's major capitalist countries. Data from the foreign capital market shows that the asset prices had experienced a sharp increase during the inflation was in a lower case. Similarly, our economy has the property of asymmetry between asset and price levels. This case cause us to consider the logical relationship between our inflation and asset prices. The article will study this deeply. With China's capital market'continuous developing, the residents have increasingly thrown themselves into the real estate and the stock market, so that the study will have important theoretical and practical significance.Based on General price index from Alchian & Klein(1973) and the real estate values theory from Modigliani and Cohn(1979), the paper now Study the inflation illusion. The conclusion is asset prices should be introduced in the inflationary expectations. The illusion of inflation will lead the capital market investor underestimate nor overestimate the asset values, because they discount for cash in nominal interest rates than the actual rate of interest in real cash flow. But the traditional on asset price inflationary hallucination theory analysis does not concern effect inflation expectation on the asset price. It just study the effect the achieved inflation rate on the intrinsic value of the stock. This paper also uses investors'sentiment indicators to measure the expected behavior. And investors may change their behaviors due to inflation expectation. On the basis of analyzing the effect of inflation on investor sentiment and property values, the paper has demonstrated that the inflation illusion also emerge in China capital markets, and under the situation inflationary expectations of the investors, sentiment as well as premium of investors also Key Words:Inflation Illusion, Premium,VAR, Impulse Response...