Empirical Study On The Influence Of Intervention Events To Chinese Stock Market

The concept of " efficient market" was first mentioned by Eugene Fama in1965, how information affects the stock market returns has been an research project interested by academic and business world since then. As the world’s second largest economy, China’s stock market has its own characteristics compared with mature developed capital markets. In order to study such characteristics, this paper will select interest rates, deposit reserve ratio adjustments and the Federal Reserve QE as intervening variables and use the intervention analysis model to empirically study the short-term, mid-term and long-term impacts of such information on China’s stock market under the efficient market hypothesis,.The main contents of this paper include the following aspects:(1) Summarized literature of the domestic and foreign research on the impact of interest rates, deposit reserve ratio adjustments, and quantitative easing on the stock market;(2) Based on the Shanghai Composite Index daily returns data from January2,1997to December31,2013, use intervention analysis model to quantitatively analyze the short-term impact of interest rate and deposit reserve ratio on China’s stock market, considering the impact of increasing and decreasing interest rate and deposit reserve ratio as well as the calendar effects;(3) Based on the Shanghai Composite Index and Dow Jones industrial average daily returns data from January2,1997to December31,2013, study the different impacts of the Fed’s each round of quantitative easing on China and U.S. stock market daily returns during the policy period (mid-term) and until December31,2013(long-term), taking QE1-QE4as intervening events respectively;(4) Give theoretical explanation of the quantitative results and propose policy recommendations.The main conclusion of this paper includes the following aspects:(1) The adjustments of only interest rate and deposit reserve ratio will not affect China’s stock market;(2) In the case of considering calendar effects (mainly Thursday effect), the impact of interest rate adjustments on the stock market mainly reflects in the reduction of interest rate, which negatively affects the Shanghai Composite Index yield with a degree of-0.008397;(3) In the case of considering calendar effects (mainly Monday effect), the impact of the deposit reserve ratio adjustments on the stock market mainly reflects in the increase of deposit reserve ratio, which negatively affects the Shanghai Composite Index yield with a degree of-0.007852;(4) The reduction of interest rate and increase of deposit reserve ratio do not have the mid-term effects on the stock market return;(5) QE1policy period (mid-term) has a positive impact on the China’s stock market daily yield with a degree of0.001688; QE2has a long-term negative impact on China’s stock market daily yield with a degree of-0.000868;(6) QE1policy period (mid-term) and QE1(long term) have significantly positive effects on the U.S. stock market daily return with a degree of: QE1(mid-term)0.00726and QE1(long-term)0.00344. When considering the long-term impact of QE1policy, QE2, QE3and QE4’s impacts on the U.S. stock market are not significant;(7) QE2policy period (mid-term) and long-term have significantly negative impacts on RMB-US dollar exchange rate, with degree of-0.000201and-0.000116respectively, which also verified the economic analysis of Mundell-Fleming Model.