Research on the Impact of Stock Yields on Currency Demand under Different Stock Market States
|Keywords||stock yields currency demand investors mood VAR model|
The stock market is an important part of the financial market, which is one of the main places for investors in the asset selection. Investors in the financial markets select the assets structure and quantity according to different states to the yield, therefore, the changes of the stock yields will enable investors to change holding the currency amount and distribution structure, thereby affecting the currency demand. In addition, due to the different subjective factors in the different stock states, such as preferences, cognitive, and emotional, so change and the influence of stock yields to the currency demand will also be uneven.This paper focus on the stock market, relying on the currency demand theory and research for behavioral finance, and choose monthly data from jun.,2001to dec.,2010,which divided into bull market and bear market by using the method of the parameters. The paper selects two most representative situation intervals-a bear market:2001.07-2005.05, and a bull:2005.05-2007.11.By constructing a vector auto-regressive (VAR) model and vector error correction model (VECM), and using co-integration analysis, impulse response function and variance decomposition, the paper empirically researches the influence of stock yields under different market states to the currency demand on the long-term and short-term effects. The empirical results show that, in the different market states, stock yields have different influence to the currency demand, presenting the diversity.From the influence on the direction:in a bear market condition, co-integration analysis shows that it has a negative relationship between the stock yields and currency demand, so in the long run, stock yields drop will lead to increased currency demand. Error correction result also shows, in the short term of the stock yields change on currency demand, it exists the adjustment mechanism, and when the deviation from the equilibrium relationship between the two, it will adjust the deviation from the equilibrium error rate of0.67%. In a bull market condition, co-integration analysis shows that the positive relationship between stock yields and the currency demand, the stock yields rise will lead to increased currency demand; Error correction results show that, in the short term, the stock yields change on currency demand exists the adjustment mechanism, and when the deviation from the equilibrium relationship between the two, it will adjust the deviation from the equilibrium error rate of4.65%.From the influence extent to see:co-integration analysis shows that, under the condition of a bear market, the influence coefficient of stock yields to money demand (absolute value) is0.53, far less than that under the bull market state (absolute value2.77), which explains the influence extent of stock yields to currency demand in the bull market state is far more intense than in the bear market; Impulse response function and variance decomposition results also indicates that in the bull market condition, the influence contributions of stock yields to currency demand change is more than the bear market condition, which shows that, in different market states, the stock yields’impact on demand is not symmetrical.