The Analysis Of The Effect Of Change In The Monetary Policy To Stock Market At In China

Monetary policy is an generic terms of policy and tools that the central bank used. The central bank uses various means to control and regulate money supply or the size of credit. The monetary policy is core tool of country for regulating macro economy. Monetary policy is becoming more and more important for national monetary authorities, which uses it to regulate the domestic and international capital market. The central bank solved uncertainty of the external circumstance by implementing flexible monetary policies. Especially in the past few years, in order to achieve certain goals, emerging economies frequently implement monetary policy to adjust money supply, interest rate, exchange rate, deposit reserve rate, etc. Meanwhile, due to the implicit properties and shortcomings, the stock market in emerging economies has been more and more likely to be affected by monetary shock. Through more than20years of the development, the stock market in China,which is the representative of emerging economies, has formed multi-level market system to optimize the allocation of resources, to diversify risks, to find new ways of financing and to indicate the macroeconomic circumstance. However, the stock market in China is immature. Extreme volatility caused by numerous irrational and speculative behaviors reflects the stock market system is imperfect in many aspects, thereby causing failure of macroeconomic regulation. Especially in recent years, in the context of the global market recovery, China’s stock market performance in the global stock market ranked last. In this context, this paper studies the impact of monetary policy, the impact of the stock market from the following aspects.This paper briefly introduces the tools of monetary policy in theory and analyzes the impact of monetary policy shocks on the stock market in the views of interest rate and money supply.The interest rates have an impact on stock market via the discount rate effect, corporate financing costeffect and the substitution effect of other financial assets, while the money supply affects the stock market by portfolio effect,expected economy circumstanceeffect and liquidity effect. Next, this paper empirically analyzes the impact of monetary policy shocks on the stock market returns. Beginning from the theoretical construct of the model, this paper introduces the model we used gradually and separates the questionin some parts and solves respectively.Finally, in this paper, we divide the stock market into different statuses. Beyond, wedivide the impact of monetary policy shocks into two parts:the previous monetary shocks and the current monetary policy shocks. Weget the following conclusions:(1) the impact of monetary policy has no significant effect on the stock market status. State transition matrix reflects an significant signal of maintaining phenomenon, i.e. the stock market has a relatively strong maintaining state. It is difficult to change the stock market state only by monetary policy shocks.(2) Compared to the impact of interest rates, previous money supply has a robust impact on the stock market. Even in different market conditions, the previous money supply shock and stock market yields remain a relatively robust negative correlation, which suggests that monetary liquidity is an important factor affecting the stock market returns. In the bear market, the direction of the current monetary shock has an asymmetric effect on the stock market, but in the bull market it does not have this feature.(3) Interest rate shocks on the stock market yield are delayed-time and different according to the status of the stock market. In different market conditions, the current interest rate shocks are not significant. In the bear market, the previous interest rate stock and stock market yield have a negative correlation, but in the bull market, they have a positive correlation.