The Research On The Impact Of The Short-term International Capital Flows On Stock Price In China

The RMB has been on a long-term appreciation trend since the exchange rate reform in July 2005, which attracts a large amount of short-term capital inflows. The short-term international capital inflows on one hand arbitrage from RMB appreciation and on the other hand go into asset markets to benefit from asset price movements. But with slowing economic growth in China, depreciation of the RMB, and raising interest rates in US, international capital begin to be from inflow to outflow, increasing the stock market volatility. It is stressed in the 13th Five Year Plan that capital account convertibility will be carried out in order. Meanwhile, the RMB has officially classes as an SDR currency. These conditions will speed up the opening of capital account. However, capital account liberalization will also cause the frequent flow of international capital and bring shock to financial market especially stock market that speculative capital interested in. At present, China implement strict control on international capital into stock market. Open sources include B-stock market, QFII and Shanghai-HongKong stock connect and so on. Nevertheless, the concealed short-term capital in stock market should also be taken into consideration. Thus, examining the effects of short-term international capital flows on Chinese stock market has references for capital account liberalization.Based on that, this paper applys both theoretical and empirical analysis to study the influences of short-term international capital flows on Chinese stock market and considers the role of exchange rate. First, we make a literature review about the relevant theory of short-term international capital flows, which lays a foundation for empirical part. Second, the empirical study contains two parts. The first part studys the impacts of short-term international capital flows on stock market from three levels:A-stock market, B-stock market and SME Board. Using the monthly data from July 2005 to December 2015, we build a VAR model and employ Granger causality test, impulse response and variance decomposition to analyze short-term international capital flows on stock market. The second part is a supplement part that analyze the effect of short-term international capital flows on Chinese stock market from the perspective of Shanghai-HongKong stock connect.The results show that short-term international capital flows do not have significant influences on A-stock market, while dramatically affects B-stock market and SME Board. ShortOterm international capital inflows will contribute to the increase of stock price at first and withdraw quickly after making a profit. This leads to the increase of stock price fluctuation and eventually leads to the drop of stock price. Through the channel of Shanghai-HongKong stock connect, international capital inflows will promote the rise of related stock price. Therefore, to open capital account prudentially, while strengthening the supervision of short-term international capital flows and building early warning system.