Research On The Impact Of Monetary Policy On Stock Market Volatility

The traditional monetary policy transmission theory is based on the hypothesis of "rational man",which holds that monetary policy can affect the price of risky assets through the changes of money supply,interest rate,credit and exchange rate,and finally transmit to the real economy,so as to achieve the goal of sustained and stable economic development.But not all investors are rational,and an increasing number of financial anomalies make it impossible for classical traditional finance to explain them,prompting economists to deepen their thinking on the basic assumptions.With the continuous development of behavioral finance,the scholars start from the investor psychology factors to study the financial markets,especially China's financial system is not sound enough,and given priority to with retail,lack of professional ability,market assessment of irrational emotions will change investment behavior and further to promote financial market volatility.Therefore,it is necessary to study whether investor sentiment plays a role in the influence of monetary policy on stock market volatility.In addition,the change of investor's emotion will be influenced by monetary policy,it is necessary to further study of how monetary policy cause changes in investor sentiment,so as to help the central bank to increase the effectiveness of monetary policy,also provide reference basis for the decision-making behavior of investors,to avoid sharp fluctuations in the stock market caused by the irrational emotions.Based on the above,in this paper we study the impact of investor sentiment and monetary policy on stock market volatility from the perspective of the transmission process of investor sentiment and monetary policy.Firstly,the paper reviews the related literature on the impact of monetary policy and investor sentiment on stock market fluctuations,laying a foundation for the theoretical mechanism analysis below.Secondly,the paper focuses on the transmission mechanism of the influence of monetary policy and investor sentiment on stock market fluctuations,as well as the role of investor sentiment in the transmission process,and puts forward corresponding hypotheses for the analysis of the transmission process.Thirdly,the corresponding monetary policy indicators are selected and the stock market volatility and comprehensive investor sentiment indicators are constructed.Then,by comparing the VAR model with and without investor sentiment,it analyzes the difference in the impact of monetary policy on the stock market volatility in the two cases,and tests the role of investor sentiment in the transmission process of monetary policy on the stock market.Then,the TVP-SV-VAR model is further used to study the impact of monetary policy and investor sentiment on stock market fluctuations at different lead times and different time points,as well as the impact of monetary policy on investor sentiment to some extent,from the perspective of time variability.Finally,the paper summarizes the full text and puts forward the corresponding countermeasures and Suggestions.Based on the above analysis,the following conclusions are drawn: First,different monetary policies have impacts on stock market volatility,but different monetary policies have different impacts on stock market.Second,investor sentiment has a significant effect on stock market volatility and has a catalytic effect.Thirdly,monetary policy can also cause the change of investor sentiment to a certain extent,in which the negative impact of interest rate on investor sentiment has a long lag.Fourth,investor sentiment plays an important role in the transmission process of monetary policy.The occurrence of sentiment will change the transmission effect of monetary policy,weaken the influence of money supply,interest rate and credit on stock market fluctuations to some extent,and increase the influence of exchange rate on stock market fluctuations.