The Volatility Of The Capital Market And Macroeconomic Control Mechanism

There are numerous historical events about the financial upheavals triggered by the excessive volatility of asset prices, such as the Tulip Fever in 1637,the South Sea Foam in 1720, American Banking Crisis in 1907, the collapse of Wall Street in 1929 and the Black Monday in 1987 and so on. In 1990s, with the trend of financial liberation and innovation as well as the development of information techniques, the capital market was expanding continuously, so as to its market tendency. However the excellent capital market could not balance the tremendous turbulence of financial system and the following real economic depression. So it came in succession the Lost Ten Years in Japan, Asia Financial Crisis and US Subprime Mortgage Crisis. In the circumstances of the great revolution of global financial system, the financial crisis, discussed above, embody some new characteristics:first of all, the combinations of capital market and money market as well as the accommodation of domestic market and international market are fostering the escalation the scale of financial asset. The change of asset price has exert great influence on the asset value held by market's principal parts, that are family and enterprise, and also on the nations'macroeconomic. Besides, the excessive volatility of asset prices is more and more becoming the incentive of the unstable macroeconomic. Secondly, the above crisis all happened when the circulating medium was working smoothly, while the establishment and implement of traditional money policy is in a dilemma because of the violation of asset price from common commodity and service price.Currently, people have not taken many eyes on the systematical research about the relationship between the excessive volatility of asset prices and economical financial crisis. The related studies are mainly about banking and money crisis. The asset price is only an additional object in the research of crisis. While to the policy of money, the asset price has being detached from the objective system for a long time. And there exist many aspects which are not ascertained till today, such as whether asset price can bring into the money policy's objective system or not, and if it could how it would be come true. The above problems can be understood in the former capital market which was not developed enough and its scale was too narrow. However today, according to the unprecedented development of the capital market's depth and breadth, and the changing world economic system and its developing rate, which are greatly influenced by the inflation of financial asset characterized with price volatility and quantity increased in a high speed, the former theories relating to the asset price and economical financial steady will become relatively lag and flexible.Although China has avoided all previous crises, the dangerous of financial crisis also exists. The capital asset is fluctuating fiercely. The asset price bubble is looming and the financial crisis is standing out for the converging attack of domestic and aboard liquidity. So we are compelled to find the inherent volatility system of asset market and to resolve the problems of asset price bubble. With the consideration of above problems, this dissertation will study the periodicity circulate system of asset price bubble's "inflation-burst" and the transmit system of banking and money crisis.The purpose of this thesis is to provide theoretical basis for establishing scientific and effective crisis protection and financial steady policy.This dissertation includes six chapters.The first chapter is the retrospect of some classical literatures relating about asset market volatility and financial crisis. The review of Marxian dummy capital theory and some classical models of Keynes, Fisher and Minsky is the basis of following discussion.In chapter two, on the basis of financial asset's special attribute, I will expound the value decision system of asset price and its inherent value's experience judgment with Gordon dividend constant growth model. And the foundation value will be contrastive analyzed between Chinese capital markets with overseas markets such as US,Hong Kong, Taiwan with the method that the Gordon Model contains simultaneously, so as to understand the overall level of asset price in Chinese capital market. On the basis of the correct understanding of asset prices, the excessive fluctuations will be analyzed with qualitative and quantitative method. And then, the major effect factor and their frequency and the degree in Chinese capital market will be measured in the Factor Analytic Method. The third chapter first analyzes the theory flaw of EMH and the difficult position of EMH caused by financial heteromorphy's;and then the Behavior Finance's analysis method will be leaded. In which method, the investor contain the non-rational behavior characteristic such as excessively self-confident, the flock of sheep effect as well as the regeneration transaction and so on. In this part, the DSSW model will be introduced to analyze the catalytic role of investor behavior characteristics in asset price bubble. In brief, the generation of asset price is be analyzed in the micro view from the investor perspective.In the fourth chapter, the excess liquidity has been selected as an asset price bubble of the macroeconomic factor, therefore, the focus of this chapter is to analyze the mechanism that how do asset price be caused by excess liquidity. According to the balance sheet of banks in the open economy, we can see that money supply is mainly held by domestic commercial bank credit and foreign exchange reserves composition, therefore,we can extend credit as endogenous liquidity and define the capital inflow as exogenous excess liquidity, and then the asset price bubble could be analyzed from these two aspects respectively. Finally, an empirical analysis on excess liquidity and asset price bubbles in Chinese capital market will be carried out with a regression model.The purpose of chapter five is to review the generation and proliferation of financial crisis from the aspect of asset price fluctuation. First of all, this chapter will analysis what is the condition of asset price fluctuation continuously exists and why it collapses.In succession, the transmit system, with which the bubble burst causing banking and money crisis, will also be probed in this part. And the cases of sub prime mortgage crisis and Asia financial crisis will be exampled here to support theory of the transmit system discussed above.For the capital asset is fluctuating fiercely and the asset price bubble is looming as well as the financial crisis is standing out in our domestic capital market, the sixth chapter will provide corresponding measures to control the circulated problems. The main steps are as follows. We should set up multi-level capital market to control the excessive fluctuate. And the scientific money policy should be established to ease the excess liquidity and to control asset price bubble. Besides, we can establish the warning system against the financial crisis to resolve the systematic crisis.The innovation of this paper include:1.The expected innovations of this dissertation are as follows. First, the principal investor behavior in microcosmic level will be connected with the excess liquidity in macrocosmic aspect in order to analysis the operating mechanism of asset price bubble's "expansion-break" and the transmission mechanism of how it causes the financial crisis. In the aspect of microeconomic, since capital market is the competitive sites constituted by numerous investors and speculators, so we should explain the irrational fluctuations of capital market, separating from fundamental aspects, in the prospective of behavioral finance, so that we can attain the suitable micro perspective in the process of the analysis the asset price bubble. However, without the support of liquidity, no investor can translate his or her subjective will translate into invest reality. Thus the asset price can not be influenced either. The liquidity can provide the capital support to asset price. Meanwhile it can also influence the expectation of invertors as well as the asset price indirectly. According to this thread, and in the circumstance of current economic, we can reach the reason why the asset price bubble is swelling in the aspect of liquidity. So the transmission mechanism, with which the credit crunch and capital reflux cause the financial crisis, can also be understood easily.2. According to the literature based on liquidity and the money support system showed by balance sheet of banking system in the open economy, this paper divides the mechanism causing the asset price bubble into internal liquidity impact caused by credit expansion and external liquidity impact caused by capital flows so as to analysis the action mechanism of excess liquidity on asset prices systemically.3. The present thesis makes a systematic study on the periodicity of capital price foam's "explosion-collapse" and the interactive mechanism between bank crisis and currency crisis. Contemporary financial crisis theories are mainly focused on the study of bank crisis and currency crisis, but emphasis on the capital market crisis is not enough. However, past crisis events showed that American Great Depression in the 1930s and the Japanese constant economy recession in the 1990s both origin from the involvement of bank credit into capital market, which aggravated the rapid explosion of capital price foam and leads to a sustained recession of the entire economy. In the Asian financial crisis in 1997, the interactive mechanism between the capital price foam and the inflow of foreign capital is the same. The present thesis aims to arouse emphasis on the interactive mechanism between t the credit expansion, the capital flow and the capital price by making a systematic analysis on it.4. On the basis of analysis, the present thesis suggests respondent strategies and policies to the severe influence of world financial crisis on China's economy.