Effects Of Short-term International Capital Flows On China's Stock Market Wealth Effect

In November 2013,the Third Plenary Session of the 18th CPC Central Committee put forward the following proposals once again:" promote the opening of the capital market in two directions,improve the degree of convertibility of cross-border capital and financial transactions in an orderly manner,and establish a sound macro-prudential management framework for managing external debt and capital flows,speed up the convertibility of RMB capital account." Since then,more and more international capital inflow and outflow China frequently.Especially the short-term international capital flow with strong speculative purpose has more and more influence on China's financial market and economic development.In this paper,the impact of short-term international capital flows on the wealth effect of stock market is studied,instead of directly studying the impact of short-term international capital flows on asset prices.This paper is divided into two levels.The first level is analyzing how short-term international capital flows influence the stock market wealth effect.Short-term international capital flows influence the wealth effect of stock market mainly through influencing asset price.The second level is an empirical test of the impact of short-term international capital flows on the stock market wealth effect.This empirical test is divided into two steps.First,measure the level of wealth effect in the stock market.Second,use short-term international capital flows and other variables as explanatory variables to test the effect of short-term international capital flows on the wealth effect by using stock market wealth effect as explanatory variable.The empirical results of the first step are in line with the life cycle consumption theory.It is noteworthy that the wealth effect of the stock market is more prominent in the subprime mortgage crisis in 2008 and in the period of 2012 when the United States out of quantitative easing led to the outflow of capital in China,making the stock market wealth effect from positive to negative.It seems that short-term International capital outflows have a certain inhibitory effect on the stock market wealth effect.The empirical test in the second step confirms the inhibitory effect of the short-term international capital flow and the real effective exchange rate of RMB on the stock market wealth effect.In this regard,the final results based on theoretical and empirical tests of international capital flows and exchange rate management policy recommendations,policy makers should pay attention to international capital flows,it should consider how to make international capital flows to better play the stock market's wealth Effect and to improve the consumption of residents,thereby promoting the sustainable development of the domestic economy.