Monetary Liquidity And Stock Prices

This article, starting with the controversy over "excess liquidity pushes up asset prices," use theory and empirical research methods to explore the following core issues on currency flows and stock prices: if monetary liquidity can affect the stock price; the reasons of monetary factors affecting the stock price; monetary policy through what channels to influence the stock price; and what kind of effects can be got.Through systematic analysis of monetary liquidity and the correlation between stock prices, monetary liquidity is a factor affecting stock prices. Because there is a currency un-neutral and non-market-effective, stock prices go against the theory, which implies no correlation between those two variables. Stock price subject to the influence of monetary liquidity, through asset portfolio effect, interest rates means, inflation illusion channel.This article uses some statistical methods, including co-integration test, impulse response function analysis, variance decomposition and causality test, to examination the interaction between the variables in a more comprehensive way. By co-integration and Granger causality test means, China's stock market shows currency un-neutral and non-effective feature. Monetary liquidity will impose a long-term positive impact on stock price, through all three channels. And empirical results support the author's injection, which assumes that the monetary liquidity shock has an asymmetric effect on small and large companies' stocks.