The Dynamic Impact Of China’s Interest Rate On Stock Prices

Review the development history of China’s stock market of30years, China’sstock market has developed from small to large, and now the stock market value ofChina’s stock market has been among the world top. As a barometer of economicdevelopment, the function of the stock market in our country is not obvious, the mainreason is that as the information transmission channel, the stock market has noeffective conduction of the central economic policy. The biggest, most direct impactof these policies is monetary policy. As the tools of china’s monetary changes frommoney supply to interest rate, our study of the impact of interest rate on stock marketis very important in our country. Based on the study of on abroad and at home, thispaper integrates various aspects research, in combination with the practical situationof China, using the latest econometric research methods, choosing the CSI300indexas the representative of large cap stocks and the small board index as the small capstocks, selecting the bankruptcy of Lehman brothers as the symbol of financial crisis,the sample will be divided two parts, before financial crisis and after financial crisis. Istudy the impact of the dynamic effect of interest rate on SCI300and small abroadindex in different situation. The results prove that after the financial crisis, there isonly the single price spillover effect of interest rates to the stock price. But before thefinancial crisis, the price spillover effect exists two-way. At the same time, in thewake of financial crisis, there is only the single volatility spillover effect of interestrates to the stock market. However, using the sample data and before the financialcrisis, the volatility spillover effect is bidirectional. While bidirectional volatilityspillover effect between interest rates and small and medium-sized board index has nothing to do with the sampled stocks selection and economic environment. Finally, Ianalyze the reason of the delay of interest rate to stock market, and give mysuggestion based on my knowledge, that is, for policy makers, it is very necessary toactively promote the reform of China stock market and improve the stock marketoperation mechanism, so that the information can spread effectively. The stock alsocan play the full role of barometer of the national economy. Besides, the policymakers should make the tools of monetary policy gradually shift from money supplyto interest rate, and consider the influence between monetary policy and stock market.Besides, investors should pay attention to the monetary policy well when they makedecisions.This thesis consists of five parts:The first part introduces the background of the research and the significance ofthe topic; also, it includes the research ideas and major innovations.The second part is literature review. It summarized the relevant literature in thedomestic and foreign about the impact of interest rate on stock market. This paperintroduces the research achievements in this field. Besides, I also analyzed thedeficiency of previous research methods, and put forward the methods of this essay.The third part introduces the methods that this research used in details, that is,introducing the VAR-MGARCH-BEKK model, and explaining what the parametersclearly, besides, I also put out the estimation method that model is used.The fourth part is the empirical analysis, mainly analysis the dynamic effects ofmonetary policy on the stock market by VAR-MGARCH-BEKK model, includingthe price spillovers and volatility spillovers of interest rates and stock prices ofdifferent broad stock price. The research results show that in different economicenvironment, the spillover effect and volatility effect between interest rate and stockprice is different. After the financial crisis, there is one way price spillover effect andvolatility effect between interest rates and stock prices; but before the financial crisis happened and in all samples, there are two way relationship between interest rate andstock prices.The five part is the conclusion and suggestion. Besides, I also analyze theresulting disruption of the reasons for China’s monetary policy in stock market. Ithink, our country should improve the operating mechanism of stock market, andincrease transparency of monetary policy, so the market expectations can follow themonetary policy, so as to achieve the purpose of policy.