Monetary Policy And Stock Pricing

Asset pricing has always been one of the core issues in financial research.The early capital asset pricing model was a static model of a single period and could not explain the size effect of and the book-to-market ratio effect of the stock market.While the standard consumption-based capital asset pricing model provides a good theoretical basis,the empirical results are not supported.Therefore,the improved consumption-based capital asset pricing model is one of the hotspots of academic research.On the other hand,the research on the pricing model of consumption-based capital assets mainly focuses on the European and American stock markets,but there are few studies on developing countries such as China.Therefore,this thesis is devoted to studying the ability of the improved conditional consumption-based capital asset pricing model to explain China's A-share market.Since monetary policy can have an important impact on the stock market,this thesis constructs a conditional consumption-based capital asset pricing model based on monetary policy indicators(M0 growth rate,M1 growth rate,M2 growth rate and credit growth rate),and conducts research on three aspects:(1)Whether there is an equity premium in the Chinese stock market;(2)Whether the conditional consumption-based capital asset pricing model can explain the A-share market return and the Fama-French portfolio return;(3)Whether per capita consumption expenditure of urban residents or per capita retail sales of social goods can measure per capita consumption levels.Firstly,based on the market quarterly rate of return of China's A-share market,this thesis uses the generalized method of moment estimation to empirically test the unconditional consumption-based capital asset pricing model and the consumption-based capital asset pricing model with monetary policy indicators as conditional variables.The results show that the unconditional consumption-based capital asset pricing can not explain the return of the stock market,but the consumption-based capital asset pricing model with M1 growth rate or credit growth rate as the conditional variables explains the return of the A-share market.Moreover,the model's subjective discount factor and relative risk aversion level are estimated to match the actual market,and the model does not generate equity premium issues.This thesis also constructs 25 Fama-French stock portfolios to study the consumption-based capital asset pricing model.The empirical test method is two-pass cross-sectional regression.This thesis finds that there is a size effect and book value-to-market effect in China's A-share market.The results of two-pass crosssectional regression show that the capital asset pricing model and the unconditional consumption-based capital asset pricing model can not explain the cross-sectional return difference of stock portfolio,while the Fama-French three-factor model and the consumption-based capital asset pricing model with monetary policy indicators as conditional variables can explain it,where M1 growth rate is the most suitable conditional variable.The empirical results of this thesis also show that the per capita consumption expenditure of urban residents can measure the per capita consumption level,while the per capita retail sales of social goods is not suitable as a measure of per capita consumption.The conclusion of this thesis is that the consumption-based capital asset pricing model with the monetary policy indicator as the conditional variable can explain the market return?the size effect and the book-to-market effect of the Chinese stock market.The model will not generate the mystery of the equity premium,and the most reasonable indicator of monetary policy is the growth rate of M1.The main reason of the result is that the risk premium has time-varying characteristics,and the consumption-based capital asset pricing model with monetary policy as the conditional variable can describe this characteristic and reasonably reflect the change of consumer risk aversion level.