Analysis Of The Impact Of Short-term International Capital Flow On Stock Price

With the continuous promotion of economic globalization and financial integration,the short-term international capital flows have been increasing the economic development of all countries in the world and have become more and more obvious in the world economic system.On the one hand,short-term international capital flows make the financial markets more active and promote the effective allocation of global resources;On the other hand,they contribute to imbalance of global economy with increasing the vulnerability of developing countries financial systems,weakening the independence of national macroeconomic policies,exacerbating financial market volatility,and even possibly triggering a global financial crisis and macroeconomic fluctuations.This paper discusses the impact of short-term international capital flows on the stock price on the basis of theoretical and empirical perspectives,and explores the relationship between stock price and the openness degree of capital markets.Firstly,the paper adopts the first quarter of 2005 to the fourth quarter of 2016 static panel data of 33 developed countries and 36 emerging market countries to study the mechanism and the direction of short-term international capital flows on the stock price,and it shows that short-term international capital flows have a greater impact on the developing economies than the developed economies.The reason is that the financial market of developing economies is relatively immature,which has a lagging domestic financial system,lacks supervision and provides the conditions the short-term international capital flows to the capital market.Secondly,this paper introduces the product terms of the capital market openness and short-term international capital flows in the static panel model which is used to verify the potential impact of the openness capital account on the interaction between short-term international capital flows and stock price.For the developing economies,the liberalization of capital accounts can reduce the barriers to short-term international capital flows and strengthens the impact of short-term international capital flows on the stock market.While for the developed economies,they have a relatively high capital liberalization,and established a sound financial market system whose market investors are more rational.Therefore,the openness of capital account will weaken the impact of short-term international capital flows on the stock market.Thirdly,the paper constructs a VAR model to examine the role of China's short-term international capital flows on China's stock market.The results show that the increase of money supply and the appreciation of the RMB will cause the rise of the stock price in China and may lead to inflation and macro economy unstable.In order to prevent the impact of short-term international capital flows on the stock market,both developed and developing economies should be cautious about the risks and benefits of short-term international capital flows,establish early warning mechanisms for capital flows and strengthen global financial regulatory cooperation.At the same time,it should have a strict control of capital project openness process and the direction of short-term capital flows,avoid the influx of speculative markets,and smooth fluctuations in the stock market.