China’s Monetary Liquidity And Stock Price Fluctuation Correlation Analysis

Real estate prices from 2003 began rising rapidly, the stock price has started in 2005severe inflation, after the experts’ investigation and study, find that liquidity in which plays avery important role.At the same time, because the liquidity is constantly changing, themonetary policy of our country also is in change.In order to cope with the Asian financialcrisis in 1997, Chinese government takes is a prudent monetary policy, China is facingdeflationary pressure at that time, then the steady monetary policy is to increase the moneysupply.After 2003, economy gets restore and had rapidder development, government toimplement "moderately tight" monetary policy, after 2007 the United States sub-loan crisis,monetary policy into a "moderately loose", followed by the 2011 European debt crisis,monetary policy into "sound".Corresponding to the stock market also correspondingchanges.This expectation for empirical testing of monetary liquidity and stock price indexrelation, for policy makers and investors to provide a certain reference.The research object of this paper is the monetary liquidity and stock price, the paper willfocus on two aspects: one is the analysis of the present stage our country monetary liquiditysituation and the cause of its formation; two is to investigate the monetary liquidity and stockprice index and the correlation between relationship.Because of China’s money supply anddemand structure, international revenue and expenditure structure as well as the savings andconsumption, consumption and investment structure long-term imbalance, leading to thecurrent monetary liquidity surplus is mainly manifested in the whole, monetary excess supply,financial institutions deposit difference to expand ceaselessly and high foreign exchangereserves in three aspects.Currency liquidity surplus on the asset price bubble fueled, the entityeconomy’s healthy development has negative influence.This paper chooses M1 / M2 as ameasure of liquidity and the size of the index, because the M1 represents the stock of moneyimportant flow features, M2 can better reflect the characteristics of the change of the totalstock of money.In the select stock price index, the Shanghai composite index is chosen,because it can greatly in response to China’s stock price changes, and the data is easy toobtain.Involved measurement method, we established the VAR model, using cointegration test,Granger causality test and Grainger VAR model equation analysis of monetary liquidity andstock price index of the correlation between; using impulse response function and variancedecomposition analysis of monetary liquidity and stock price index of the relationshipbetween.Finally, we draw the following conclusions. Overall, in the long term, monetary liquidityand stock index is long-term associated, or positive correlated, and the fluctuation of stockprice is the monetary liquidity change Grainger reason. These conclusions we forecast thestock price goes situation, timely adjustment of investment strategy has a certain referencevalue.