Empirical Research On The Relationship Between Chinese Monetary Policy And Stock Market Returns

As to be one of the important transmission channels of monetary policy, stockmarket is also a significant component of economy. Recently, Chinese stock markethas developed rapidly and fluctuated significantly, which impacted the developmentof economy and finance greatly. On the one hand, it plays a positive role in monetarypolicy; on the other hand, it weakens the effect of monetary policy on some level.Therefore, the central bank has taken advantage of monetary measures to regulate andcontrol the stock market, but the result is unstable.In this paper we analyze the relationship between monetary policy and stockreturns. Firstly, it makes a brief introduction of related theory, including monetarypolicy, stock market’s fluctuation and their relationship. Moreover, in order to adetailed description of their association, I select the typical variables, for instanceShangHai Composite Index and M2, and make use of our country’s latest data witheconometrics methods to do empirical analysis between monetary policy and stockreturns. During this process, it involves some models, such as the structural vectorautoregression (SVAR), impulse response function (IRF), variance decomposition,VECM and structural generalized autoregressive conditional heteroskedasticity modeletc. On that basis, we can have an insight into the interrelationship between monetarypolicy and stock returns. I find that not only does monetary policy’s change impactthe stock returns instantaneously, but the stock market also has a significant influenceon the efficiency of monetary policy. The research of this paper, to some extent, maythrow some light on recognizing the relationship between Chinese monetary policyand stock market. It also gives monetary authority some consultation to make aappropriate decision and promote the stock market develop healthily.