Research On The Impact Of Short-term Cross-border Capital Flows On Stock Prices

Since the Industrial Revolution,economic globalization and trade globalization have become an irreversible trend and are gradually accelerating.The economic relations between big countries are getting closer and closer,and the economic exchanges between countries are mainly manifested in the growing international trade and international cross-border capital flows.Since the global financial crisis in 2008,cross-border capital flowing into Asia through capital and financial accounts has increased significantly.Cross-border capital flows with procyclical characteristics can not only promote the economic prosperity of the inflowing countries,but also magnify the country's financial markets especially the stock market's turbulence,exacerbated risks in the country's financial system.As China gradually expands its efforts to open the inter-bank bond market,furtherly improves the investment system of qualified foreign institutional investors,and cooperates with major domestic and foreign exchanges to implement exchange connectivity,foreign investors' investment in China's securities market has become more convenient.At the same time,in view of China's various bonds and stocks being continuously included in international mainstream indexes such as MSCI and FTSE Russell,foreign investors' demand for China's bonds and stocks has gradually increased.Statistics from the State Administration of Foreign Exchange indicate that in recent years,the total size of bonds and stocks held by various foreign institutions in China has increased from 219.2 billion US dollars at the end of 2014 to 444.8 billion US dollars at the end of 2018,an increase of 103%.Among them,the scale of holdings of stocks increased by 64%,from 110.7 billion US dollars to 181 billion US dollars.In the future,China's securities market still has great potential to attract overseas investment.However,considering that the shareholding ratio of Chinese-foreign joint ventures in China's securities market is only 2%,which is not only lower than that of developed countries but also lower than that of major emerging market countries,conducting empirical research directly on China's situation may not be particularly significant,and there are many scholars' researches on this topic.In view of the fact that China's current economic situation is relatively similar to Japan in the 1980 s,and that Japan has experienced capital control,this article focuses on the impact of Japan's short-term cross-border capital flows on its stock market,analyzes the differences between China and Japan,and explores the implications of Japan's experience for China.Based on the theory of interest rate parity and the theory of the Mundell-Fleming model,this article elaborates on the impact of short-term cross-border capital flows on stock prices theoretically based on real economic conditions.This article first uses relevant data from Japan over the past two decades.Establish a VAR model to specifically analyze the impact of Japan's short-term cross-border capital flows on its stock market,and then empirically test the differences between the response of China's stock prices to the impact of Japan and short-term cross-border capital flows based on relevant Chinese data.Summarize similarities and differences of short-term crossborder capital flow management policies,summarize Japan's short-term cross-border capital flow policy management experience,and provide practical policy recommendations for China to effectively monitor short-term cross-border capital flows.The main research contents of the full text are as follows: First,summarize the relevant literature on short-term cross-border capital flow measurement methods,influencing factors,and influencing mechanisms,and raise issues for further research.Second,review the relevant theories of short-term cross-border capital flows on stock prices,including the theory of interest rate parity and the Mundell-Fleming model,and summarize the channels in which short-term cross-border capital flows affect stock prices in the real world.Third,research the relationship between short-term crossborder capital flows and stock prices based on actual data,and explore the transmission mechanism of the impact of short-term cross-border capital flows on stock prices in Japan.Fourth,study the influence of short-term cross-border capital flows in China and the impact of various capital items on the stock market,analyze and summarize the similarities and differences between the two countries 'policies in managing crossborder capital flows,and draw inspirations.The conclusions of this article are as follows: First,short-term cross-border capital inflows have a positive impact on Japanese stock prices,which will cause Japanese stock prices to rise,and the direct impact will be limited.As analyzed in Chapter 3,short-term cross-border capital inflows mainly affect investor expectation through investor expectation channels,leading them to remain optimistic about the future of the stock market and increase investment to affect stock prices.In addition,they also use currency liquidity channels,the interest rate and exchange rate channels to cause changes in the actual effective exchange rate of the Japanese yen,JEER,and the domestic base currency,M2 J,to affect the stock price.Japan's stock price can quickly return to stability after the impact,and various external factors have no lasting impact on the Japanese stock market,indicating that the Japanese stock market is more stable.Second,short-term cross-border capital inflows will cause rise of China's stock prices.Unlike Japanese empirical results,Chinese stock prices are more susceptible to the direct impact of short-term cross-border capital flows than to the indirect impact of channels such as investor expectation and interest rates.The effect of short-term crossborder capital flows on China's stock price is more obvious,causing China's stock price to fall first and then rise and continue to fluctuate for a long time.Compare to the influence of capital account China Shanghai-Hong Kong Stock Connect / ShenzhenHong Kong Stock Connect Net Inflow SC,Qualified Domestic Institutional Investor Approved Investment Quota II,Qualified Foreign Institutional Investor Approved Investment Quota QFII,RMB Qualified Foreign Institutional Investor Approved Investment Quota RQFII to stock price,the effect of short-term cross-border capital flows on China's stock prices is the strongest,with the most explanatory power.Third,the scale and direction of China's short-term cross-border capital flows are more complex and changeable than those of Japan,so China's stock market is relatively more vulnerable to the impact of short-term cross-border capital flows.The degree of fluctuation and duration of the Chinese stock market after being impacted by various factors are more significant than that of the Japanese stock market after being impacted by various factors,indicating that the Chinese stock market is less stable.Finally,this article draws the corresponding policy enlightenment.First,strengthen the supervision of short-term cross-border capital to reduce the impact of short-term cross-border capital on the stock market;second,improve the efficiency of China's stock market and enhance the ability of the stock market to resist risks;third,Establish a macro-prudential regulatory framework and early warning indicator system,and implement risk prevention measures.