The Effects Of Monetary Policy On Stock Returns Of Different Firms

China’s economy’s smooth running and fast growth have long benefitted from its stable financial market.The people’s bank of china and its monetary policy are playing more and more important roles on regulating China’s financial system and keeping the economy running smoothly.Any change of monetary policy will affect people’s forecast on future economy,the change will impact the prices of the equities of public listed companies and transmit into the physical economy.The public list companies differ from one another at many aspects,thus the financial constraints they face vary,making them their reactions to monetary policies different.The researchers from China and overseas have made deep and extensive studies regarding the reactions of equity markets to the changes of monetary policy,they have used M1,M2 supplies and market interest as proxies of monetary policy changes,to study how the changes of monetary policies impact stock markets,both theoretically and empirically.However,Chinese researchers have focused their attentions on how monetary policy change impact stock market as a whole,few have investigated the difference between the reactions of different public listed companies to monetary policy change.This paper first examined monetary policy’s influence on equity market in a theoretically way,then using 1996-2016’s market data to conduct an empirical analysis.Using the theory of term structure of interest rates,I synthesize the market’s expectations on the People’s Bank’s change of interest rate.After that,this paper investigated the unexpected part of interest rate change’s impacts on public listed firms with different industry affiliations,different size(measured in market value),different debt to total capital ratio,different operating cash flow to net income ratio,different price earnings ratio and different Tobin’s q.The results show that,there is a negative relationship between unexpected interest rate change and stock market returns.The results also confirm that unexpected interest rate change impact public listed firms differently because of their different industry affiliations,different size(measured in market value),different debt to total capital ratio,different operating cash flow to net income ratio,different price earnings ratio and different Tobin’s q.Therefore,the People’s Bank of China should take monetary policy’s asymmetric impact on stock market into account.