Empirical Study On The Impact Of Interest Rate Adjustment On Stock Price With Expected Perspective

Interest rate policy is one of the three main tools of the monetary policy, and its change has aroused the market participant widely interesting. Market will always form the expectation of interest rate adjustments and reflect it in the current stock price. As the strength and timing of interest rate adjustments are very hard for the market participant to grasp, there is always existing bias between the real rate adjustment and the expectation. This bias is just of the unexpected part of the interest rate adjustments in the market. According to the efficient market theory, the existing market price has already fully reflected the status of all the existed factors, so only new information which are not expected by the market are able to affect the market. Therefore, on the impact of interest rate adjustments on the stock market, abroad scholars have introduced expected factors, and started to research the impact of unexpected central bank interest rate adjustments on market through the use of various market instruments variables to decompose interest rate adjustments.At first, we transformed the policy interest rate adjustment into market interest rate movements through the long-term stability relationship between the one-year deposit interest rate and the one-month inter-bank lending rate. Then, using the forward interest rate which implicit in the different period inter-bank lending rate, decomposes the market interest rate adjustment into expected part and unexpected part. Finally, we make empirical tests on the impaction of interest rate adjustments to stock market in the context of different market by building event window and using the linear regression model, GARCH model and SVAR model.Study found that, immediate impact response of stock prices on the different nature of the unexpected interest rate adjustment shows a significant negative relationship under the background of different markets. Different nature and different market context of the unexpected demand shock effect of interest rate adjustment is the existence of asymmetry. In the short term, the effect of unexpected interest rate adjustments on the stock price is significant; and they will generally aggravate the short-term fluctuations of stock market. Also, different backgrounds and different nature of the unexpected interest rate adjustments on the stock market short-term fluctuations are asymmetry. Interest rate adjustment has a long-term effect on the stock market. The movements between actual interest rate and stock price appear a positive correlation but no significant in the null market. But their relationship show negative and the effects are remarkable. In addition, the expectation of market has a outstanding long-term impact on the stock market.