Research On The Effects Of China’s Monetary Policies On Stock Market

Since reforming and opening-up, the monetary authorities of our country has taken a series of regulatory measures used of monetary policy on the macroscopical economy, in the past thirty years, it has accumulated rich experience, and achieved great success.The operation effect of the monetary policy has been improved, the central bank uses monetary policy frequently and more intensity.The implementation of monetary policy in China’s capital market has a very important effect, and the stock market as the most important part of the capital market, the implementation of monetary policy will have a profound impact on it. Study on the influence of monetary policy on the stock price for the strengthening of monetary market and capital market and promote China’s financial stability and economic operation has important significance.On the effects of monetary policy on stock market analysis and research have attracted the attention of economists at home and abroad, and domestic and foreign economists has much research on this question, but China did research on this problem is not enough. Then, on the basis of the basic theory of the monetary policy, we analyz the influence of our country monetary policy to stock market, and use the stock market and macroeconomic monthly data from1997January to2012April as samples, use Markov switching model analyze China’s stock market’s state mechanism characteristic, and there are three regimes in our stock market:low loss, low volatility, low volatility,high yield; high loss, high volatility. And we study the influence of are China’s monetary policy to stock market in different state, study effects of the inter bank loan interest rate changes, the money supply M2changes on the stock market return. we can conclude the following conclusion:First, China’s monetary policy on stock market returns is affected mainly by the interest rate shocks and monetary supply shocks, interest rate shock impact on the stock market is mainly via the listing Corporation and investors. On one hand, the change of interest rate can affect the stock price through the listing Corporation’s financing cost. On the other hand, the change of interest rate can influence of the investor’s asset allocation,thus affect the stock market price through expected effect, substitution effect, cumulative effect and cost effect.Second, China’s stock market has regime swithing characteristic, this paper uses Markov switching model simulate China’s stock market, and find China’s stock market has three kinds of state regimes, low loss, low volatility, low volatility,high yield; high loss, high volatility.According to the status of mechanism transition probability matrix, we calculated:(1) China’s stock market at low loss low fluctuations in the market this month, the probability of the market still maintain it is0.97next month, and if the regime change occurrence, it most likely to convert to high yield, low volatility state.And the duration of this rate is32.5months.(2) China’s stock market is in high yield low fluctuations in the market this month, the probability of the market still maintain it is0.76next month, Once a state conversion occured, it most likely convert to high loss high volatility Market. And the duration of this rate is4.25months.(3) China’s stock market is in high yield low fluctuations in the market this month, the probability of the market still maintain it is0.82next month, Once a state conversion occured, it most likely convert to high yield low volatility Market. And the duration of this rate is5.57months. Finally, according to the smoothed probability and mean duration, we can conclude that three states of China’s stock market appeared alternately, but, Low loss low volatility market appeared mostly, and it has a longer duration.High yield low fluctuation in prices and high loss high volatility level appears less often, and the last time is relatively short.Among them, high yield low volatility level appears less, and duration is the shortest.Third, the impaction of China’s monetary policy on stock market exists asymmetric effect.Through the research discovery, we can find that asymmetric effect of our country monetary policy on stock market is mainly manifested as the following:In different market conditions, changes in the interest rate and money supply impact on the stock market in the direction of action, impact strength, effect time has significant difference.(1)As to interest rate, generally speaking, it has negative influence on the stock return rate, but in different area system,the effect is different.When the stock market is in the high loss,high fluctuation market, response of stock returns to the shock of interest rate is much larger than at high yields,low fluctuation and low loss,low fluctuation state.we can say that the impact of the interest rate on the stock market in high loss, high fluctuation market is biger than those at high yields,low fluctuation and low loss,low fluctuation market.Overall, the control of interest rate on the price of stock is effective, the increase of interest rate can make investors’found outflow of the stock market,transfer to money market to a certain extent, thereby stop the stock price rising.(2) As to money supply, money supply changes impact on the stock market is more significant in a high loss,high fluction market than in high yields,low fluction and low loss,low fluction market.This shows, when the stock market in high loss, increasing the money supply will increase the stock market returns, and can receive immediate effect.At the end of this paper, according to our conclusions, we make some related proposals to the monetary authorities and investors.