Inflation Influence On Domestic Stock Actual Yields

Along with the development of global economy and unceasing expansion of financial market, stock investment has become an essential part in peoples'life. Since the stock market of China established in 1990, it develops unceasingly and have made remarkable achievements. More and more stock investors enter the market shares as the investment also more and more get the public favorite. Stocks are many invcstor's favour, because investors want to gain higher by stock investment income. Investors pay close attention to the question that whether the currency depreciation and risk premium caused by inflation can be offseted with stock yields. Therefore, this article will research on it that how inflation affect the domestic stock.Based on reading a large number of literature, this article analyze the relevant theorys of inflation. It analyse the causes and characteristics of the inflation happened after year 2000, correspond to each period of inflation, how stock market fluctuate. At the same time, we will observe the track of inflation and the stock returns. About researchs on the relationship between inflation and stcok yields, foreign scholars first propose the Fisher Hypothesis. This hypothesis think that inflation and the stock returns are positively related. Before 1930s, this theory is generally accepted by several economic researchers. But in the 1930s,through more and more in-depth empirical researchs,scholars believe that inflation and the stock yields are not necessarily positive correlation. Using different data and models,the conclusion will be different, but the most conclude is that inflation and the stock yields are negative correlation. In order to interpret this paradox,mant scholars put forward some theory, such as Agent Effect Hypothesis, Volatility Hypothesis, Risk Premium Hypothesis, Inflation Illusion Hypothesis and Variability Hypothesis.Using the monthly data from January 2000 to August 2010, this paper choose the actual stock yields,inflation rates,the money supply growth rate and industrial growth rates as variables for empirical analysis. First it use ADF method for stationary test, then do Johansen test and Granger test. After these tests,we will use the four variables to establish VAR model, and separately through the impulse response function and variance decomposition to concretely analyzes the interaction between the variables degree. Through empirical analysis of inflation influence on stock yields, it conclude that the relationship between inflation and stock yields do not satisfied "Fisher Hypothesis,"and the inflation on actual stock returns exist negative influence, as also the effect is long-term and stable.Overall, the rate of inflation, industrial added value growth rate and the money supply growth of stock returns have long-term and stable relationship. Among them, the inflation and monetary supply to the influence of growth stock yields is negative. Meanwhile, the influence between inflation rate,industrial added value growth rates and the money supply growth rates is existing circular relationship. The money supply growth increase will cause inflation rose, and inflation growth rate increases will cause the increase of industrial added value growth, futher industrial added value improve will bring money supply increases; If you don't control the money supply excessive investment, it will cause inflation, industrial added value and currency supply fall into vicious circle. The inflation can affect stock yields, inflation rise will make the actual stock yields down. Therefore, inflation and the stock returns are negatively related. In inflation period, investing in stocks is not a loss to circumvent the buying power of a currency over time effective means, the stock is also unnecessarily inflation hedge product.