Study On Relationship Between Interest Rates And Stock Prices

As an important place for finance and investment, stock market means a lot not only to the GDP, but also to the enterprises and the investors. During the development of the stock market, rise and fall may appears interactively, which is not healthy for the market. The big bull market, beginning at 2007, climbed to the top 6124.And the central bank took some measures to control this situation, including raising the deposit rate five times, which still not change the trend of the stock market. As one of the most important monetary policies of the government, the adjustment of the interest rate usually is done to regulate the macro-economic, as well as the stock market. We also can find that the adjustment do not necessarily bring the expected result. Theoretically speaking, if the government raises the interest rate, the stock market may fall, and vice versa. I think the reason is that the stock market is affected by a lot of factors, more than the interest rate, so when we do research about it, we also need to think of the economy and the trend of the stock market.This article studies the relationship between interest rates and stock market from two aspects. One is the short-term impact on the stock market when the interest rate is adjusted, which is based on the efficient market theory. Event study is used in the process. We find that the interest rate adjustment on the stock market is not very clear, the stock’s trends more dependent on the prevailing market environment, a bull or bear market sentiment; then is the long-term relationship between the interest and stock market. The result is that the adjustment of the interest rates does not necessarily results to the change of the stock markets. But. for the long term, adjustment of interest rate is the reason of the change of the stock price.