Research On The Asymmetric Effects Of China's Monetary Policies On Stock Market

Monetary policies play a very important role in the control of macro-economy by the monetary authorities. Since Reform and Opening-up Policies was executed, China has taken a series of macro-control measures used of monetary policy on the national economy. In the past 30 years, we have accumulated a wealth of practical experience, and achieved great success. Operational efficiency and effect of monetary policy have got a great improved. The frequency and the intensity of the monetary policies operated by the Central Bank have also been strengthened. The implementation of monetary policies gives profound impacts on many economic markets including the stock market. As reform of non-tradable shares was completed, the stock market operational mechanism have gradually improved, The stock market plays a more obvious and important market mechanism role on the resource allocation, property-rights exchange, risk management and corporation governance. So it is of great significance both for maker and practitioner of the monetary policies and for the investors of the stock market that we study the effects of monetary policies on the stock marketSuch studies have attracted many macro-economists and financial-experts to focus on this issue. There are plenty of researches made by foreign or mainland experts and scholars, while there are slightly less about asymmetric effect of monetary policies on stock market. As result, this paper starting from basic theory of monetary policies, theoretical analysis the mechanism of the monetary policies impact on stock market, and then combined previous research about the asymmetric effect of monetary policies, summarizes two reasons to explain the asymmetric effect of monetary policies on stock market. Finally, select monthly data of the stock market and related macroeconomic monetary policies from January 1996 to August 2011 as a sample.use the Markov Switching model to identify the regime of China's stock market,And on this basis, we further empirical research the effects of money on the stock market in varies regimes. We draw the following conclusions. First of all, our country's monetary policies have clearly characters of non-linear and regime Switching. We take Markov Switching model to analyze the stock market, there are three regimes in our stock market, the bull market (high yield, high volatility), the small bear market (low loss, low volatility), the large bear market (high loss, high volatility). Through the transition probabilities matrix, we learned:the expected duration of three regimes respectively is 8.76 months,31.12 months, and 6.31 months. Finally, according smooth probabilities, we conclude duration of every regime in the history. From this conclusion, we found three regimes are alternately appeared. However, the small bear regime appeared more times and lasting long time. In another hand the bull regime and the large bear appeared less times, and lasting also relatively short time, in which the large bear is the least times and the shortest time. And this conclusion consists with average duration inferred.Secondly, there are asymmetric effects of the monetary policies that impact on the stock market. This asymmetry effect is mainly manifested in the significant, the direction, the impact strength, the lasting time that monetary policies affect the stock market in the various regime when the money supply or the interest rate have changed.Thirdly, the effects of three kinds of monetary policy instruments impact on the stock market have some differences. From lag order of three kinds of monetary policy instruments adjusted model, we know money supply M2 of have more lasting effect on stock market, because Money supply M1 and the interbank interest rate IR only have two lag order, while money supply M2 have four lag order. In addition, in view of the two type tools of monetary policies, money supply will disturbs the stock market greater, and will increase the volatility of the stock market, while interest rates have a relatively operating effect. It is a good policy tool in the view of stabilized the stock market.