A Research Into The Effects Of Liquidity Shock On The Asset Price Volatility

Throughout the development of world economy, each financial crisis was accompanied by liquidity imbalance. During the world-wide financial crisis in 2008, the periodic change and the state transition of liquidity were regarded as the main factor of asset price fluctuation. While the liquidity shock process went through "rapid expansion→surplus→sudden reversal→fast shrink→shortage", the asset price was correspondingly in the state of "sharp rise→under pressure→collapse down". The volatility of asset price caused by liquidity shock not only impacted on the stability of financial system, but also influenced the well-operation of a country even the global macroeconomic.In order to systematically study the effects of the liquidity shock on the asset price volatility, this paper firstly illustrates the concept of liquidity shock and asset price volatility on the basis of existing research by clarifying the connotation, characteristics, causes and factors for the follow-up study. Secondly, it analyzes different transmission of liquidity shock to asset price volatility, including monetary supply transmission channel, interest rate transmission channel, credit transmission channel, external shocks transmission channel, expected conduction transmission channel and the macroeconomic transmission channel, and actual cases are applied to explain these channels. Then, real estates, stocks, bonds and commodities, these four categories of representing assets on China’s capital market are selected, and the spectrum analysis method, the state space method and the VAR method are taken to measure periodic linkage effect, time-varying effect and spillover effect respectively. The test results show that:(1) There is a mapping relationship between the monetary liquidity cycle and asset price volatility cycles. The bond price volatility is prior to the cycle of monetary liquidity, while the real estate price volatility, the stock price volatility and the commodity price volatility are lag in monetary liquidity. In terms of reaction sensitivity, commodity ranks first, stock ranks second and real estate ranks last. (2) Impact factors of the liquidity shock on asset prices volatility have significant structural changes, especially before and after the outbreak of the sub-prime crisis from 2007 to 2009. The changes of impact factors of liquidity shock to stock and commodity is the most severe two, while the impact factor of real estate and bond are the least severe two. (3) Liquidity shocks have positive spillover effects on the real estate price volatility, the stock price volatility and the commodity price volatility and have a negative spillover effect on the bond price volatility. Meanwhile, the interest rate shock have negative spillover effects on all four types of assets, and the interest shock contributes higher degree to real estate, stock and commodity price volatility of variance than liquidity shocks. Finally, several relevant policy suggestions are given according to the above research conclusions.