Research On The Effect Of Chinese Interest Rates On Stock Price

Interest rate is one of the important tools of monetary policy. At present, China’s interest rate is gradually implementing market-oriented reforms and the rate of financial institutions lending was finally out of control in July2013. The change means China’s interest rate is gradually achieving market rate and it will always make adjustments in the future. The adjustment of interest rate will not only affect the money supply, but have an impact on the expected rate of return of capital, financial situation and other companies will, in turn the stock market will have some impact. How will the interest rate affect the stock market? Is there any influences between them? These issues are always the hot spot of the economists research at home and abroad. With the rapid development of the Chinese market, the problems are also worth studying and exploring. I choose the interest rate and stock price index as sample data from April21,1991to July6,2012to do the empirical analysis. With the analysis, I analyzed the stock market’s long-term and short-term effects when the interest rate changes.As China’s stock market was established just20years, the current domes-tic research in this area only select the data from a few years or more than ten years with some limitations. The limitations of the data selection are not conducive to study China’s interest rate and the stock market long-run equi-librium relationship. Therefore, this paper selects the data from April21,1991when the China’s stock market is established to6July2012. This paper uses the30samples to do the empirical analysis of the interest rate on the stock of the long-term effects and short-term market impact.This article not only has an improvement in the selection of the data, but also has some improvement in data processing. The paper selected the stock index which is an average in a period of time corresponding to the level of interest rates. The way of the data processing helps to avoid some of the effects of short-term fluctuations, and more contribute to research long-term relationships, making the results more convincing.This paper includes the following aspects of content:First, the relevant lit-erature and research context have been complied; Second, this paper analyzes the relationship between interest rate and stock prices theoretically and make a conclusion the they have a negative relationship. Besides, I have studied some empirical theory and have chosen a right method for the empirical analysis. At last,through the E-G two step cointegration test, Granger causality test and short-term error correction model test, it proves that the interest rate and the stock price index has a long-term stable negative correlation relationship and the interest rate is the granger cause of stock price index.