Circular Flow Of Money And Volatility In Financial Asset Prices

With the deepening of the financial liberalization in the national economy, each of the financial and economic crisis is along with the impact resulted from the factors of asset price fluctuations and price bubbles during the operation of the financial markets. Especially in the case of the credit economy, asset prices are usually combined with credit of asset mortgage, which makes the asset price bubble and credit as well as the entire financial system be together. It can be said that problem of financial asset price bubble in the trading activities of the financial markets is that the main factor affecting the financial and even the real economy, including the overall macroeconomic stability. With the steady development of the financial market, in our country, the regulatory system is not perfect, however, based on the expansion of a variety of financial services and the innovation of financial products, the problem of financial asset price fluctuation should be treated with caution. Then strengthen the intervention of the regulatory authorities to market transaction and market price, carry out of the financial supervision of financial asset prices, reduce the risk of price bubble crisis and remove a major threat to the financial crisis and modern economic security.Here, based on the perspective of monetary circular flow, explore the generation mechanism of volatility in financial asset prices, conduct theoretical derivation. The analyses find that financial hoarding (two parts, including net savings and money creation) and the inflow of hot money from abroad are key factors caused the fluctuations in the prices of financial assets. Based on the results of the previous theoretical analyses, basic regression analysis showed that financial asset prices own high self-correlation. What is more, after co-integration test, impulse response analysis and variance decomposition, as well as the State-space models combined with generalized autoregressive conditional heteroskedasticity (GARCH), the results showed that: there are balanced and stable relationships between the volatility of financial asset prices and financial hoarding or hot money in the long term. Moreover, hot money tends to flow into the stock market, and the stock market has a strong sensitivity of changes in the hot money. In contrast, financial hoarding are more willing to enter the real estate market, having a steady positive effect on the housing market. In view of that, propose appropriate policy recommendations to guide monetary capital flows, regulate financial asset prices effectively, reduce the risk and guard against financial crisis.