The Study Of Monetary Policy On Chinese Stock Market

The stock and stock market play an important role in the capital market, and hasbecome an indispensable part of the capital market. Stock has been regarded as animportant mean of direct financing for the entrepreneurs, and also treated as anindicator of choosing the capital for many investors and the public, which means it’san effective way to improving the level of material economy efficiency through thefinancial assets flow and the way of choice. After the financial risk took place, themonetary policy has been used more frequently by the Bank of China to curb theinflation. Meanwhile China capital market (Stock Market) is just in the successiveshock period, so the purpose of Chinese central bank making adjustment of itsmonetary policy is not only for stock market, while the reality must have an impact onthe emerging stock market.First, this paper makes a statement about the features of China monetary policyand stock market, and also makes a theoretical analysis about the concerning issuesand the impact of monetary policy and stock market. China monetary policy hasexperienced four different development stages since the foundation of China, andfinally the indirect conduct mechanism-“policy tool-operation target-intermediateaim-ultimate target” has been founded. Meanwhile, many problems such as “policycity”, unsound law of stocks, lack of investment goods, and the backward philosophyof investors still exist in China stock market. People can know the monetary markethas some effect on the stock market and also many other factors affect it after readingthe paper.Second, the paper analyzes how the monetary policy can affect China stockmarket in a short term by event study method. For example, the adjustment frequencyof two periods of2007-2008&2010-2012are the highest, and the event window isduring the10days before the policy was announced and5days after it, it’s totally15days. It’s researched that the reaction of China stock market to the news about theadjustment of monetary policy varied greatly, and was not obvious, so the effect of themonetary policy won’t affect China stock market obviously in a short term.At last, the paper also researches how monetary supply, bench mark rate anddeposit reserve ratio affect China stock market (Shanghai Stock composite index) in along term by using PARCH model. After three indicators of the stationary test, the empirical analysis, the first analysis of the correlation between the three indicators,and regression analysis to arrive at the result that the different effects of good newsand bad news on the stock market, That is, the tightening of monetary policy wouldhave a greater impact on stock.