Studies On The Relationship Between China's Stock Market Volatility And Economic Fluctuations

Our country is now being in the transformation course from planned economic system to market economic system, the stock market of our country, which plays an very important role during this course, developed with the establishment of the market economic system of our country. Grew up under the burgeoning capital market, the stock market of our country emerge some disfigurements, such as strong volatility, compare with these relatively mature stock markets of western developed country the development of the market is not complete,the size of the market is relatively small,the market transactions have strong short-term speculative characteristics. In response to this reality this paper done the empirical testing and analysis the china's stock market volatility, the fluctuations in the economic cycle . and the relationship between them .at the end get some inspiration about economic policies.Chapter one, reviewed the history of studying on the stock market volatility, fluctuations in the economic cycle, as well as the interaction between them. The study of foreign scholars mainly concentrate on the following aspects: they deem that the changes of stock market price leading to changes in macroeconomic indicators, play the role of a weatherglass of the economy, and the changes in stock market price is mainly affected by the impact of macroeconomic factors in the long term. Secondly, they deem that the volatility of the stock market and the fluctuations in macroeconomic has a direct link, in the period before and in the depression the volatility of the stock market will increase: Thirdly, the volatility of the stock market and the fluctuation of macroeconomic variables are related closely. China's stock market is still in the early stages of development, there are some characteristics that well-developed capital markets do not have. Based on China's actual conditions and the specific characteristics .domestic scholars carry out a lot of theoretical analysis and empirical studies, the studies about the volatility of the stock market and the fluctuations in the economy get different conclusions, and the research methods are simple. Based on these, find out the practical significance of this paper. Meanwhile, described the model and the methodology to be used in the paper briefly.Chapter two, reviewed the history of the development of ARCH/GARCH model briefly at first. Then, we apply ARCH / GARCH model to estimate and describe the volatility of the stock market and the fluctuation of the economic cycle of our country. First, we use ARCH/GARCH model estimate the data of stock market yield. Found the response of our stock market to the information is not sensitive enough, the volatility is strong, and have strong short-term speculative characteristics, the stock price index showed a more obvious level of stage. The stability of the fluctuation of China's economic cycle enhanced, the duration lengthened, but the fluctuation still strong, the impact of the fluctuations persist long. Found the response of our stock market to the information is not sensitive enough, the volatility is strong, and have strong short-term speculative characteristics, the stock price index showed a more obvious level of stage. Make seasonal adjustment of the rate of inflation and industrial added value growth rate, then use ARCH/GARCH model to make estimation. Found that the stability of the fluctuation of China's economic cycle enhanced, the duration lengthened, but the fluctuation still strong, the impact of the fluctuations persist long.Chapter three, Introduce Markov-Switching model which is widely used in analyses long-term economic activities such as economic growth and short-term fluctuation behavior such as volatility of financial market. Point out the limitations of this model, and make some expansion. Then, base on chapter two, use Markov Switching model to plot out the regime of the stock market yield, got three regimes, they are contraction, moderate contraction, expansion . Then, use impulse response function on the variables in each regime, to find the interactions between these variables. In the state of contraction, there is a positive correlation between stock yield and industrial added value, and an negative correlation between stock yield and the rate of inflation: in the state of moderate contraction, there is a positive correlation between stock yield and industrial added value, the correlation between stock yield and the rate of inflation is not clear ; in the state of expansion, the correlation between stock yield and industrial added value is not clear , and an negative correlation between stock yield and the rate of inflation.Chapter four, summarize and analyses the empirical testing result, at the same time analyses the economic consequences of the stock market's volatility. Finally, get some inspiration of economic policy.