Study On The Relationships Between The Volatility Of China's Stock Market And Macroeconomy

Stock market is the outcome of economy development and whereas stock market has affected on economy. Financial market volatility is an important input for investment, option pricing and financial market regulation. But over volatility not only seriously damage the functions of securities market in price finding and resource allocation, but increase Macro-economy's fragility.So volatility forecasting is an important task in financial markets and it has occupied the attention of academicians and practitioners over the last two decades. Chinese capital market has only recently developed. The market system is not completed and scale of transaction remains small. But the ration of market value to GDP is gradually increasing and the effect on national economy is obvious. Volatility of market also becomes hot issues in finance because it's very important for stable economy growth especially for preventing finance risk and ensuring health development of finance system. It's very essential to make studies on the relationships between volatility characteristic of stock market and economy. There is a lot of unstable and uncertain factors effecting stock market but because of interactions between stock market with entity economy and entities in market with outside environments, in long term there is a certain tendency and rules in its process. The study is not only an academic question, but also becomes the important factor of impacting development of the capital market. On the relationships of volatility and Macro-economy, present studies covered three areas: the relationships of volatility and entity economy, stock circles and economy circles and volatility and macro-economy policy. The paper is focused on the first area. Data that we choose is the daily and monthly Composite indices of Shanghai Securities Exchange and monthly macro-economy parameters (Gross Industrial Production Output,Price Index,Monetary Supply,Import Value,Export Value and Interest Rate)from periods of Jan,1994 to December.2003.After defining volatility and its main characteristics,we examined the data's descriptive statistics characteristics, then empirically estimated the volatility equations of Chinese stock market and macro-economy based on the ARCH model by Matlab.6.0 and Eviews.4.0 Further we tried to define the relationships between the relationships of volatility between stock market and economy by VAR model. Finally we affirmed the results by the data of Shenzhen Securities Exchange Comp. Subindex during Mary 1998 to December 2003. Analyses on results provided some reference to policy decision-making for healthy development of Chinese stock market and Macro-economy...