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The Study on the Impact of Interest Rates Changes on the Stock Market Yields in China

Author GaoLiNa
Tutor TangShaoXiang
School Ningbo University
Course Finance
Keywords Interest rate stock market yields VAR model impulse response function
Type Master's thesis
Year 2013
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This paper is a study on the impact of interest rates changes on the stock market yields inChina. As a starting point to the development of China’s stock market and the market-orientedinterest rate reform status of the central bank changes in interest rates, the volatility of the stockprice several times into the same changes, fluctuations in stock prices means the volatility of stockreturns, with the traditional theoretical models about both reverse changes contrary. The traditionaltheory about interest rates and stock returns the efficient market hypothesis, capital asset pricingmodel, arbitrage pricing model and the present value of the theoretical four shows the changes ininterest rates and the stock market yield is inversely related to the theory.For the relationship between the two long-term or overall trend, the impact of changes ininterest rates on the stock market yields should be negative, but this negative impact strength willbe very small, then this article based on the time series of interest rates and the stock market rate ofreturn the relationship of the sequence, the VAR model and impulse response function to testresults show that stock returns by its own lag impact, from the long-term stability, and such apositive impact with increasing lag period weakened, and with interest rates changes in saidnegative correlation, that is an increase in interest rates will decline in stock returns, rising interestrates will make the stock yields rise, but the estimated parameter values is small to see from theresults of the impact of interest rate changes on stock returns is very weak, almost negligible, theexistence of economic significance.In China,interest rates changes on the stock market yields repeatedly into the samechange,according to the impact of changes in interest rates on the stock market mechanism toreduce the impact of changes in interest rates on the stock market, China has not yet fully the level of the interest rate market emerging banks the stability of the financial products and bonds, thesubstitution effect of the substantial investment income on equity investments, China’s stockinvestors risk appetite and high-to-bottom changes and the current development status of the stockmarket investors expected the four main aspects to explain the impact of changes in interest rateson the stock market weakened, and leading capital flow to changes in interest rates can not be inthe flow between the money market and the stock market, and said the same to this change in theform of changes in interest rates and stock returns "abnormal" phenomenon. Finally, according tothe findings raised the interest rate reform and the reform of the stock market, some policyrecommendations.

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