Research On The Relevance Of The Chinese Stock Prices And Inflation

The relevance of stock prices and inflation has been generally concerned by economists and political decision makers. In the past two years, the Chinese commodity prices are rising obviously and the expectations of inflation are strengthening, which urge people to search for the optimal ways of investment, avoiding depreciation of the monetary assets. As an important investment channel,the Chinese stock market has developed rapidly in these years.People are focused on whether stock prices can rise with inflation and resist the risk of depreciation so as to keep its value. In addition, it is also very important to discuss the relevance of stock prices and inflation for the central banks to carry out their effective monetary policies. That's why I talk about the relevance of Chinese stock prices and inflation in this artilcle.Previously some economists believed that stock prices could rise with inflation so that it had an effect on maintenance of value.It constituted a famous theory called "fisher effect".However,the other economists discovered that stock prices and inflation had a negative or uncertain correlation with the traditional theory "fisher effect" in certain conditions by numerous researches. After two decades of development, it is not clear whether the Chinese stock market is confronted with the same problem as the developed countries. So it is necessary for us to make an intensive study on this subject and analyse the reasons through theories and datas.Firstly this article introduces the domestic and international academic achievements about the relevance of stock prices and inflation and make a systematic analysis on the representative theory "fisher effect" and relative contrary theories.Then it elaborates the development and features of our stock market and gives a systematic explanation on the meanings,types and measurement of inflation.It also analyses the detailed characteristics and reasons for the two apparent inflations which happened in China after our stock market was founded so as to establish theory basics and current circumstances for the further demonstration analysis. Secondly, it gives a demonstration analysis on the relevance of stock prices and inflation through the selected datas and mathematical equations.It discusses the demonstration verifications of the fisher effect and agency hypothesis to prove that there's a relevance between stock prices and inflation but the fisher effect and agency hypothesis don't apply to our stock market.The research shows that it doesn't take effect on maintainence of value to purchase stocks in the long run when inflation happens at present.Although the influence of the Chinese stock prices on the real economy begins to appear, it isn't necessary for the central banks to see stock prices as one of important macro policies in a period of time. Finally, this article will state the reasons and put forward relevant suggestions and solutions.