Research On The Effect Of Chinese Interest Rate Adjustment To The Stock Price

Interest rates have been frequently adjusted for recent years; there are five times in 2007 to increase interest rates to cool down the overheated economy. As a result of the global financial crisis caused by the sub-prime crisis, China's economy is also affected by the global financial crisis. The pace of the economic development slows down, and the stock prices fall, then The Central People's Bank consecutively lows the deposit interest rates for four times on the half of 2008. Thus, the interest rate as an important monetary policy tool is popular. Interest rate adjustment not only affects the money supply, but also has an impact on the situation of the expected capital return, enterprises return and other funds. Of course, it will be actively effect on the stock market. Therefore what the interest rate adjustment impact the stock market? Fluctuations between the two impact each other or not? These problems have been the financial focus for foreign economic and financial scientists. As the rapid development of the Chinese market, it will be certainly worthy of study and exploration. This paper studies the interaction between adjustment of interest rates and equity price movements as the previous rate study from October 1997 to March 2009.Effect of interest rate adjustment to the stock market in the short term and long term are analyzed. Through empirical analysis it is found that Interest rate adjustment makes more significant impact on stock returns at the third day and the fourth day, does no significant impact on the stock returns on the other days; in the long term the relationship is negative.This paper contains the following aspects:First, the relevant literature and research context have been compiled; the paper found that the empirical study methods between interest rate and stock price gradually mature. Interest rate and stock price is found no correlation at first, and then the existence of correlation is not obvious later, and then shows a certain correlation now. Secondly, it studies the theory of relationship between interest rate adjustments and the stock price fluctuations. Thus, the two variables' correlation is negative on the normative mature and efficient market conditions. Third, empirical analysis of the impact of Interest rate adjustments on the stock prices is done. The dual linear regression equation is established in the short term, as the results of the dual linear regression equation estimated, Interest rate adjustments make more significant impact on stock returns at the third day and the fourth day, and does no significant impact on stock returns on the other days. Through the ADF test to know, interest rates and stock prices are single integration sequences. As the Granger causality test to know, interest rates does Granger Cause stock prices, stock prices does not Granger Cause interest rates. Through the JJ cointegration test it is understood that there exists a stable cointegration relationship between interest rates and stock prices. By the establishment of the error correction model to know, the correlation is negative between interest rates and stock prices in China in the long term, it has an common agreement with the theoretical basis. Finally, the paper summarizes the conclusions of this paper and the limitations of this study, as well as further problems.