Research On The Impact Of Money Supply On The Stock Market Price

Since2004, China’s money supply has shown a steady increasing trend basically, at thesame time, China’s stock market is fluctuating performance, volatile. However, every majorturning point in the stock market are related to the occurrence of directional changes inmonetary policy. So, the money supply has no effect on the stock market really? How muchinfluence? In recent years, the relationship between stock prices and monetary policy theoryhas gradually become more and more popular topic. Money supply is an importantintermediate target of monetary policy, analyzing the relationship between the stock marketand the money supply for the correct formulation of monetary policy, giving full play to theadvantages of the stock market to optimize the allocation of resources.This paper is to study the effect of money supply on stock prices. First, theoreticallydirect and indirect effects on the money supply arising from stock price analysis. In terms ofdirect impact on the money supply is mainly caused by changes in the amount of money itsmoney market and capital market changes, thereby affecting the supply and demand of fundsin the stock market, thus affecting the volatility of stock prices. In terms of indirect effects,the money supply is mainly through interest rate transmission, the price is expected to effectthe portfolio effect and the effect of inflation and other ways to indirectly affect the stockprice. Then, study the effect of money supply on stock prices from an empirical perspective.In this paper, time series analysis, select the Shanghai Composite Index as the dependentvariable, select the money supply, consumer price index and the interest rate as anendogenous variable, the money supply M is divided into three levels (M0, M1, M2),respectively. January2004to December2013monthly data for the three variables to establishVAR model. Followed by the impulse response analysis and variance decomposition analysis,the variables on the dependent variable to explore the impact of size. After then thesevariables between groups of co-integration analysis and Granger causality test.Through theoretical analysis and empirical research on the money supply affect the stockprice, we can draw the following conclusions: First, the money supply affect our stock priceindex, but different at different levels of the money supply impact on the stock price index.Through the analysis of pulse test results analysis, the M0, M1impact on the stock priceindex is much smaller than M2, according to the degree of influence on the stock price index in the order of M2, M0, M1; Secondly, M0, M1, M2and stock index exists long-termequilibrium relationship. In the long run, the increase in the money supply will inevitably leadto changes in stock prices. But in the short term, M0, M1, M2on stock prices deviate from thelong-run equilibrium adjustment efforts are very small. However, cointegration test resultsshow, M0, M1and M2on the stock price index are cointegrated, and in the long run, M0, M1on the stock price index has a positive role in promoting, M2has the stock price indexinhibition negative direction.