Empirical Analysis On Linkage Between Shibor And Stock Markets

In recent years, with the promotion of interest rate marketization, China has seen the huge breakthrough in money and capital markets. As is known, in mature economies, there is strong connectivity between money and capital markets through channels of capital, interest rate, financial intermediation, financial instrument and financial risk. Based on that, this paper researches the linkage between Shibor and stock indexes—CSI 300 index, Shanghai Composite Index and Shenzhen Component Index using data from 4 Jan. 2007 to 31 Dec. 2013.The paper studies whether there is long-term equilibrium between different Shibor(short-term, mid-term and long-term) and different stock indexes by using Autoregressive Distributed Lag(ARDL) Model. For those ARDL models in which there is long-term equilibrium, it also discusses their relationships of long-term equilibrium and short-term dynamics. By comparing and analyzing the relationships shown by different stock indexes and Shibor, the paper discusses the regularity of the linkage.Moreover, according to different economic conditions, the whole time interval researched in this article is divided into six small intervals in order to find out if the economic situation affects the relationships stated above. Finally, based on t he empirical analysis, this essay proposes some suggestions on strengthening the linkage between Shibor and stock market in China.The empirical results show: under the special system of financial separate operation, Shibor is led by the stock market; Shibor is affected more by Shanghai Composite Index than by CSI 300, and more by CSI 300 than by Shenzhen Component Index, which shows that the force of traction of Shibor by Shanghai stock market is the strongest and it better represents the whole of China’s stock market than A share market and Shenzhen stock market; The shorter the interest rate is, the stronger the reverse repair capacity is; When using Shibor as the dependent variable, there is long-term equilibrium relationship between the stock market and Shibor when the economy is booming, while when the economy is depressed, the long-term equilibrium relationship between this two markets no longer exists. Finally, the paper suggests we promote the process of Shibor as the benchmark interest rate and build the linkage channel between money market and stock market to strengthen the linkage between Shibor and stock market.