Analysis Of Stock Index Of China And Excess Liquidity

The stock market is going through a bull market from the time of the reformation of the exchange rate on July, 2005.And what leading this bull market is the excess liquidity. What that caused the excess liquidity is concluding the persisting fall of exchange rate, the unceasing enlarging of the margin of deposit and loan, the continuous extending of trade surplus and the incessant rising of M2/GDP. The persisting fall of exchange rate and increase in value of RMB bring HotMoney to our country; that the unceasing enlarging of the margin of deposit and loan means that the capital was leaving unused. In this station, the motivity of capital seeking ask for the way out was enhanced. The credit of bank is increasingly on the upsurge, all of these bring along the rising of investment and the overheated economy pressure come into being. The trade surplus being too great is caused by rapidness of export, that induced the base money being added. The rate of M2 and GDP is a important index in weighing the currency degree of economy, the continues increasing of M2/GDP is a represent of Excess Liquidity. In this thesis, through using the modern quantitative analysis tools-"co-integration analysis", I analyzed the relation of the stock market and Excess Liquidity in detail in the way of Quantitative Economics. we want to study whether there is steady relation between the stock index of shanghai and the four factors-exchange rate, the margin of deposit and loan, trade surplus and M2/GDP, who leading to the Excess Liquidity. The conclusion indicates that there exists steady relation between them. But we should get ride of trade surplus because there is linear relation between it and the other factors. I made a forecast of the index of the following two months in the use of the conclusion and get the error between forecast and the true value. I consider that government could constitute policy to adjust the economy referring to the conclusion. For there is steady relation between the stock market and the Excess Liquidity, we should resolve the root matter, the factors that bring the Excess Liquidity, and make good use of various policy including monetary policy, financial policy, foreign exchange policy and revenue policy. That will do better to the steady of the economy and the health of the stock market.