Study On The Cross-market Effects Under The Shocks Of Macro-economic Policies In China

The shock effects of macroeconomic policies has been widespread concerned bythe research scholars. Based on systematic review of the relevant literatures, this paperfinds that the researches of the shock effects of macroeconomic policies have madesome useful results. However, the cross-market effects of macroeconomic policies’impact have not yet been to the attention of research scholars. Therefore, combiningthe actual situation of China’s stock and bond markets and related policy formulationand implementation, this paper uses of the theory and method of financial marketseconometrics, by constructing econometric models, to examine the cross-marketeffects of macroeconomic policies’ impact, such as the information content ofmacroeconomic policies, the asymmetric effect of macroeconomic policies, thecross-market flight and risk contagion under the impact of macroeconomic policies.Firstly, the information content of macroeconomic policies is empirically tested.By constructing Seemingly Unrelated Regression model, this paper not onlyanalyzes within-market information content of macroeconomic policies, but alsoanalyzes cross-market information content of macroeconomic policies. Becausemacroeconomic policies will affect the order flow and liquidity of the market, thispaper also analyzes the within-market and cross-market information of order flow andliquidity. The empirical test results show that the impacts of macroeconomic policieson stock, Treasury bond and corporate bond markets are different.Secondly, the cross-market asymmetric effects of the macroeconomic policies areempirically tested. This paper analyzes the cross-market asymmetric effects ofexpansionry and contractionary monetary policies on stock, Treasury bond andcorporate bond markets. Also, this paper analyzes two cross-market asymmetric effectsof interest rate policy on the stock, Treasury bond and corporate bond markets:cross-market flight and cross-market risk contagion. This paper depicts time-varyingcharacteristics of cross-market asymmetric effects. The empirical results show that theimpact of monetary policy not only exists the direction of the asymmetric effect, butalso exists asymmetry effects among stock, Treasury bond and corporate bond markets. Changes in interest rates caused the flight between stock market and Treasurybond market, and between stock market and corporate bond market as well as riskcontagion between Treasury bond and corporate bond market. At the same time, thecross-market effects of changes in interest rates present time-varying characteristics.The size of changes in interest rates’ impact changes over time.Thirdly, the cross-market flight under the macroeconomic policies’ impact isexamined. From the micro-level, this paper analyzes the impacts of microeconomicfactors such as liquidity and order flow on the cross-market flight of stock, Treasurybond and corporate bond markets. From the macro-level, this paper analyzes theimpact of macroeconomic policy variables such as money supply and lending interestrates on cross-market flight. The empirical results show that the macroeconomic policyvariables will affect the investor’s cross-market flight behavior. There is a significantflight behavior between stock and bond markets under the influence of money supplyand inter-bank lending interest rates. Under the influence of the inter-bank lending rate,the order flow of Treasury bond market decreases, the order flow and liquidity ofcorporate bond market increases (bid spreads decreases). The impact of inter-banklending interest rates makes a significant within-market flight behavior in the bondmarket.Lastly, cross-market risk contagion under the impact of macroeconomic policiesis empirically tested. By Copula functions, this paper analysis the changes ofcorrelation structure between stocks market, government bonds market and corporatedebt market, under the impact of macroeconomic policy. Through the changes in thecorrelation structure, we give empirical test of cross-market effects under differentimpact of macroeconomic policy. Evidence shows that under the positive impact ofmacroeconomic policies, there is positive shift investment behavior between stocksmarker and government bonds marker, stock market and corporate debt market as well.There is risk infection between government bonds market and corporate debt market;under the negative impact of macroeconomic policy, there is significant cross-marketrisk contagion among stocks market, government bonds market and corporate debtmarket.