Research On Relationship Of Financial Asset Price And Inflation In China

In August 2007, the subprime mortgage crisis sweep all the major financial markets of the world, including America, Europe, Japan financial markets, and followed by global inflation, many countries alarming the signal of inflation during this time. In September 15 , 2008, one of the world's best investment banks- Lehman Brothers was hit badly by the worsening effect of subprime mortgage crisis, losing too much money, applying for bankruptcy protection, which is the solicitation of the credit crisis. After that, the credit crisis evolved into world wide financial crisis, following by the slash of financial prices world widely.in allusion to this phenomenon, many scholars, homely and aboard, studied on the causes of the present financial crisis and just this very important aspect triggered me into a brown study on it: what is the real logical relationship and dynamic connection between the financial prices and inflation in china?This paper firstly provides a review of worldwide scholars' study work, relating to the financial prices and inflation. It is a pity that, until now in the total academe relating to this study field, it is still uncertain about whether the financial prices and inflation show a long term stable relationship. This is the reason why I choose this subject as my study field: through researching on the relationship between the financial prices and inflation in china (as is know to all that, the financial market of china is a emerging and system-transiting financial market), we hope to educe some valuable conclusions, and still we try to provide some insight into this market and valuable analytic method of the security for the far-ranging participants.This paper followed an academic study and empirical analysis way. In theory, this paper research on the transiting mechanism of financial prices from the aspects of Tobin'Q effect, treasure effect, balance sheet effect, and liquidity effect. Still this paper tries to analyze the real logical relationship between financial prices and inflation in theory, and we get two theorems and two cases study. About the empirical analysis, this paper choose the financial econometrics method ,such as Unit Root Tests, Cointegration Test, Vector Autoregressive Model, Impulse Response analysis, Variance Decomposition analysis, to empirical study on the relationship between financial prices and inflation in china. In general, the part of theory analysis of this paper can give a good insight into the market for the far-ranging participants, such as policy-makers, financial institutions, personal investors, especially the part of real logical analysis and cases study. I think it is very helpful for personal investor to read the market, study the market, choose the properly investments.The empirical study of this paper shows that there exits a long-term stable relationship between china's financial prices and inflation, and the variance decomposition of financial price(LOGPE) shows that 45% of financial price's variance fluctuation is explained by inflation, which suggesting that inflation has a great effect on the financial prices.