Effects Of Influent Factors On China's Stock Market

This paper mainly adopts two quantitive empirical analytical methods:qualitative theoretical analysis and measurement tools. Through setting up corresponding VAR model, this paper studies the relationship between such relevant economic factors as Shanghai Composite index, CPI, Macro-economic Early Warning Indicators, Exchange Rate of RMB against the special drawing rights, S & P 500 Index etc. and focuses on analyzing the mechanism and the degree to which these factors affect Stock volatility.By applying the Cointegration and stationary treatment, Model set, Granger causality test and Variance decomposition to index data, the paper finds out that CPI and fluctuations in exchange have greater influence on stock index, which reflects the fact that consumption and exports play an important role in China's economy. If inflation is comparatively high and Central Bank reduces Liqudity, it will have a very obvious negetive impact on stock market. China's stock market is still a Capital-driven market. The tendency of China'macro-economy and stock market in 2007 to2008 is a proof of the conclusion put forward by this paper.The stability of RMB exchange rate plays an important role in the stability of China's stock market. The appreciation of RMB will evidently promote the valuation of the stock market. Therefore, both its impacts on Imports & Exports and the development of domestic capital market should be taken into consideration to decide whether RMB is undervalued and therefore should appreciate. If the capital market has bubbles, the appreciation of RMB will increase the degree to which the stock market has bubbles, which goes against the healthy development of China's stock market.The degree of China's economy boom and the fluctuation of the external capital market have a less important impacts on China's stock index, which reveals the characteristics of China's stock market, that is, its function is insufficient and it workes comparatively independently. The reason is that the valuation of China's stock breaks away from its inner value and speculation is frequent. The influence of the external market, esp. the fluctuation of S & P 500 Index is weak. This helps explain why the Domestic A-share market rebounded in November 2008, while American Stock market was still in adjustment, and China's A-share market began to adjust itself in August 2009, while American Stock market rose sharply and continually set new rebounding records.