Empirical Study Of Money Supply Affect Chinese Stock Prices Based On The VAR Model

Since 1991, China’s stock market has developed a course of 25 years. During the development, the influence of the stock market has expanded year by year. As an important control target of monetary policy in China, the money supply now is becoming one of the major factors that affect the stock market. In general, the change of monetary policy will cause changes of the stock price volatility by changing the money supply,eventually it will impact on the investment and the overall economy. Under a known and long-term market situation, researching and quantitative analysing the affects of the money supply to stock price qualitative is conducive to the monetary authorities to make effective monetary policy, it also can promote people to improve the effectiveness of investment, ventilate the open policy transmission channels and guarantee normal operation of the stock market.The purpose of this paper is to research the impact of the money supply to stock price in a long term in stages. On the basis of combing the existing literature, first of all, we analysied the theoretical of the effection which the money supply to the stock price. And then, by using the method of descriptive statistics, we studies the correlation of all levels of money supply and stock prices in our country. Finally, we studied the impact on stock prices in the money supply under the background of different monetary policy by using the ADF test, cointegration test, granger causality test and measurement methods, such as VAR model. The results show that the money supply and stock prices have a long-term equilibrium relationship, the increase of the money supply will lead to the change of stock price. From the periodic of the study, in different stages of monetary policy, money supply and it’s liquidity will cause different impact on stock prices. Finally, according to the results of the empirical study, we summarized the full text, and put forward relevant policy suggestions in terms of the perfection of the information transfer mechanism of the stock market, and the establishion of a real market-oriented interest rate system and the protection of rights and interests of small and medium-sized investors.