Study On The Volatility Correlation Of Interest Rate And Stock Market Price Index

2014 is a key year to our country for interest rate marketization reform, along with the deposit interest rate floating range increased from 1.2 times to 1.3 times of the benchmark deposit rate. As the core of the regulated interest rate system, The ceiling on deposit rates will be released soon, with the implementation of the deposit insurance system, policy and market conditions for market-set interest rates are gradually improved, it’s regulating and guiding role on the economy and resources also continues to strengthen.The real economy and financial economy in our country promote each other, the resource allocation function of capital market on the real economy gradually increase. But since the establishment of the Bretton Woods System, along with the world economic recovery and growth, the world’s major economies had financial crisis. The Latin American sovereign debt crisis in 1982, Japan’s economic recession which triggered capital market volatility in 1990s and the Mexico real estate bubble burst in 1994, the Asian financial crisis which led to economic recession and financial turmoil in 2008, the American subprime credit crisis and the financial market led to the global financial crisis in 2010, the Greek debt crisis in Europe which resulted in European stock markets fell. The financial crisis gradually changed from the money market to the capital market crisis and the hybrid structure crisis, the financial market risk gradually increased as the leading risk-factor. Therefore, ways of the state financial institutions to regulate the financial market stability, avoiding the risk of the outbreak of the financial market system, has become an important policy and economic issues. The important monetary policy tool-interest rate adjustment, has the central regulation function in the money market and the stock market. Therefore, research on the linkage, relations, influence between the interest rate market and financial market, will help improve the overall financial risk prevention policy and as a basis for formulating relevant policies, But for deepening the reform of China’s capital market, also has an important reference value.There are a variety of empirical research method of linkage. Two main methods are the vector auto regression model and generalized autoregressive conditional heteroskedasticity model. Bollerslev (1986) constructed the GARCH model on the basis of self autoregressive conditional heteroskedasticity model, the conditional variance of the lag is introduced with the economic meaning clearly, and the model can accurately describe the volatility of financial market, its effectiveness is confirmed with widely used. With the continuous improvement of GARCH model by scholars, different type GARCH model generated continuously, Through the simulation of the variance of time series, the parameters are more streamlined, more applicable. With the emergence and development of multiple GARCH model, the system can not only depict fluctuation characteristics of a single market variable, but also different market variables. Therefore, multiple model is an effective method to study the relationship between interest rates and stock market volatility.According to the condition correlation coefficient matrix, multivariate models are mainly divided into VEC、BEKK、CCC、DCC models, because the model has advantages in dynamic correlation coefficient, parameter estimation, this paper uses the model to analyze the thesis.In order to volatility of stock market price index and interest rate of China, the meta model and multivariate model is choosed, Data were analyzed using Stata and Matlab. The study can be divided into single market research and two market linkage research:using meta GARCH model for single market research, predicting the risk and return of The interest rate market and the stock market respectively. Using multivariate GARCH model for empirical analysis of volatility between the stock market and interest rate market. According to the empirical results, analyzing the market development direction and putting forward policy suggestions.