The Impact Of Central Bank Communication On The Stock Market

China is facing a complex internal and external economic situation.Internationally,the level of global inflation remains high,and the recent rise in geopolitical risks has increased the uncertainty of the external environment.From a domestic point of view,under the influence of a series of unstable factors such as the risk of the COVID-19,Sino-US trade friction,and population aging,the downward pressure on the economy will still be greater for a period of time.Due to the constraints of the zero lower bound of interest rates,the space for traditional monetary policy tools to play an effective role in an economic crisis has been increasingly compressed,and the adjustment effect has gradually decreased.Due to its characteristics of short time lag and strong flexibility,central bank communication has begun to attract more and more countries’ attention,and has gradually become an important new monetary policy tool for countries to adjust their economies and deal with crises.In the context of the current economic downturn,it is also particularly important to stabilize market confidence and guide public expectations through communication with the central bank.Securities markets are an important component of financial markets and have traditionally received widespread attention from central banks.Therefore,it is of great significance to study the impact of my country’s central bank communication on the stock market,and to further clarify the transmission mechanism of its role.This paper analyzes the impact of central bank communication on the stock market through the event study method.This paper selects 182 central bank communication events between November 2015 and November 2021,and categorizes them into written communication and oral communication according to different communication methods,and categorizes them into loose communication,Tight communication and neutral communication,to study whether various communication events will have a significant impact on stock market returns.Empirical results show that both written communication and oral communication have an impact on stock market returns,but the impact of oral communication is relatively greater.From the perspective of communication intention,in the same way of communication events,tight communication usually has a more significant impact than loose communication and neutral communication.This paper also explores the influence channels of central bank communication on the stock market through factor analysis.After the central bank communication event occurs,this paper extracts the information of the central bank communication shock from the changes in the prices of various financial assets through factor analysis,and then uses the orthogonal rotation method to construct a risk premium factor orthogonal to the risk-free interest rate factor,and finally Test whether the risk premium factor can explain the abnormal stock returns brought about by the central bank communication event.The empirical results show that in the daily frequency data with more noise,the risk premium factor can still significantly explain 20.7% of the changes in the returns of the CSI 300 ETF caused by the impact of the central bank communication event.In addition to the risk-free interest rate channel,central bank communication can also affect stock market returns through the channel of risk premium.