Sino-us Difference Research On The Effect Of Interest Rate On Stock Price Volatility

Lots of theoretical and practical research proof that the economic conditions andthe stock market price fluctuation has close contact, a good economic condition cangreatly promote the development of the country’s stock market. Meanwhile, the rise ofthe stock market can also promote the development of the country’s economic. As oneof the vital index to reflect the development of stock market and its fluctuation, stockmarket index, it has important implication to analysis the relation between the index andsome economic variable. But, different countries with various relations, The UnitedStates has high interest rate liberalization and developed financial market, theadjustment of interest rate is relatively mature, but our country’s financial market is notperfect, the adjustment of interest rate is immature, the interest-rate policy is alsocombined with regulated interest rate and interest rate liberalization. So it is veryimportant to research the relation between both for promoting the development of ourstock market and interest rate regulatory policy. Money market interest rates reflect thecurrency supply and demand situation, and also have an effect on the stock price, so weselect the one-year deposit interest rate and the interbank lending rates of two differenttypes of interest rates as variable to investigate the influence of China’s stock market.This article analysis the impact of the interest rate on the stock market index in Chinaand USA, after the empirical research，and give some advice to the development of ourmonetary market and capital market finally.American stock market development is relatively perfect, the interest rate interestrate liberalization is realized, there are many market interest rates can be used as theempirical index, we select the representative Dow Jones index and the federal funds rateas the variables to research the interest rate effect on the stock market price and we usethe monthly data to analysis. Chinese interest rate regulation system is combined withinterest rate control and interest rate liberalization, the interest rate policy whichformulated by the central bank is not only fulfill the needs of economic developmentbut also cater to the political factors, this system played a positive role in the past, butthere are some shortcoming, it makes our Chinese stock market depends mainly on theinvestment of funds and be seen as ‘policy-dependent stock market’, block the fundsbetween the money market and the capital market for circulation. Although in recentyears our country hastened the interest rate liberalization, most interest rates were stillunder control. With the increasing of open market operations, the money market interest rates become an important target of central bank’s regulation, money market interestrates reflect the currency supply and demand situation, at the same time it will alsoimpact the stock market price, so here we choose the one-year deposit interest rates, andthe interbank lending rates as two variables to investigate the effect on the stock index.First of all, we sorted out some existing literature and analyzed the impact ofinterest rate on the stock market from the theoretical respect, think there are stock valueeffect, investment substitution effect and cost effect; secondly, focus on the empiricalresearch, using event-study analysis, cointegration test and the error correction modelmethods,find that the effect of federal fund rates on the Dow Jones index is prominent,the relevance of American capital market and monetary market is good, the Chineseconnected effect between both is non-significant, but the interbank rate is obviouslypositive correlation; then, by comparing the empirical results, combing with the theoriesbefore, we think that the connected effect between the interest rates and stock market isbetter in USA, While because of many factors Chinese situation conflict with the theory,it is because the Sheep-Flock Effect is prevalent in Chinese market, if the securitiesinstitutions show too muck funds demand in the interbank lending market, the rate willrise and then more and more individual investors and other financial institutions buy thestocks make the stock index increase, and if the securities institutions’ investment intentis not strong, individual investors and other institutions will make negative expectation,interbank lending rates will reduce, the stock index fall down finally. At last, this paperdiscuss and give some suggestions, realize that the development in stock market andinterest rate liberalization has made some achievement in our country, though therelationship between the interbank interest rate and the stock index conflict with thetheory, it is not because of the degree of interest rate liberalization but the shortcomingsin the capital market, comparing with our securities market, the US securities marketsystem is more perfect, when we develop the money market rapidly and promote theinterest rate liberalization, the stock market should also be developed, realize theeffective connect between two markets, dredge the channel between two markets andform the market-based operation mode.