Empirical Research On The Relationship Between Monetary Liquidity And Stock Price Index In China

Monetary liquidity is the money that used in financial transaction in the whole financial system. It is the reflection of the basis status of capital. Now, our country is facing to the problem of excess liquidity which relates to the rising of share prices in stock market and the flourishing of estate market. This paper is the empirical research of the relationship between liquidity and stock index in China. The purpose is providing suggestions for policy makers and investors. Specifically, the paper will focus on two aspects: First, analysis of current status of monetary liquidity and its causes; the second is to investigate the relationships between the monetary liquidity and the stock index.This dissertation consists of five chapters, the main content of each chapter is as follows:The first chapter describes the design of this research program and reviews the related theories and introduces the achievements until now. It elaborates the research background, the purpose and significance, the main research contents, the research method and the framework.The second chapter is mainly about the theoretical analysis of the relationship between monetary liquidity and the stock index. The monetary liquidity defined in this article stand for the monetary funds which used for financial transactions and other necessary reasons, and it reflects the basic funds situation.The third chapter describes the currency of the excess liquidity and analyze the reasons for this situation arising. As the imbalance between money supply and demand , import and export, savings and consumption, the monetary liquidity in China is serious excess. And it is mainly expressed in currency over-supply, the growing of the gap between deposit and loan in financial institutions and the high level of excess reserve. Excess monetary liquidity have played a important role on asset price bubbles and it have a negative impact in the healthy development of the real economy.The fourth chapter which describes empirical research on the relationship between monetary liquidity and stock index is the key part of this paper. We use the model of VAR, Granger causality test and Johansen cointegration test to study the correlation between monetary liquidity and stock index. Then we use impulse response functions and variance decomposition to analyze the influence between monetary liquidity and stock index. At last, we discuss the results of the empirical research.The fifth chapter is a briefly summary. According to the empirical research conclusions, we advise the policy development related departments to take care of the situation of excess monetary liquidity and to promote the coordinated development of money market and capital market .Then we also suggest the investors invest stock rationally.The paper about empirical research on the relationship between monetary liquidity and stock index in China is meaningful to the departments to develop the policy.