An Empirical Study Of Monetary Policy Impact On China’s Stock Market Risk

The monetary policy is one of the effective ways to maintain financial marketstability and regulate the national economy of each country. As is known to all, China’s stockmarket is an emerging and transitional market and not mature, showing unprecedentedvolatility. An important reason is that China’s stock market is sensitive to policyinterventions. Every adjustment of central bank’s monetary policy, even the expectations ofinvestors on the policy direction, may cause abnormal price fluctuations. Many scholarsconsider that China’s stock market is not a barometer of the economy, but is a barometer ofthe policy.At the same time, as the stock market develops, it has increasingly become animportant investment and financing channel, and the proportion of stocks in the assetstructure of residents is also increasing. In recent years, the central bank’s monetary policyadjustment is becoming more and more frequent, and investors attach more importance onmonetary policy factors in the investment decision-making. But overall, the majorityinvestors still lack a clear understanding of the risk level of the stock market, and lackrational analysis of the effects of economic policy. Therefore, it is necessary to adopt ascientific and simple stock market risk measurement methods, so that it can easily help theinvestors measure the effect of the monetary policy and its adjustment to China’s stockmarket risk in the day-to-day investment. VaR (Value-at-Risk) is a method of measure theexpected maximum loss, in a normal market environment and given a certain time intervaland confidence level.This method has received the domestic and foreign investment banksand security company’s extensive attention and application.Based on the theoretical research, this paper studied the impact of monetary policy onthe stock market through the introduction of the monetary policy tools and the analysis ofconduction process of monetary policy on the stock market.In the empirical analysis aspect,the author selected CSI300Index as considerations indicators, using daily data fromJanuary2010to December2012, through the significance test of interest rates and depositreserve rate adjustment on abnormal return, and observed the VaR model’s trend changes before and after the event that based on t-GARCH model, adopted event study method thatcombined with nonparametric test, analyzed different monetary policy’s impact of theevents on the stock market. It will be good for investors to correctly understand the centralbank’s policy intention and grasp the dynamic relationship between monetary policy andfinancial markets, and good for risk control and prevention, which will has an importantsignificance on promoting the healthy and stable development of China’s stock market.