شوک های پولی و تاثیرات نامتقارن در بازار سهام در حال ظهور: مورد چین

In this paper, we study the effect of monetary shocks on the Chinese stock market over the period of 2005 to 2011 with the MSVAR–EGARCH model. The evidence suggests that Chinese monetary policies have significantly asymmetric effects on the stock market in different time periods and market cycles. The effects of shocks from interest rate and reserve rate vary across market cycles but effects from money supply and exchange rate do not. Empirical evidence from the non-linear model shows that monetary policy changes increase stock market volatility, even though these monetary policies are often aimed at stabilizing macro-economic activities. The evidence suggests that both the market conditions and the effects on stock markets should be taken into consideration in monetary policy design and implementation.

Over the past decade, monetary policy has increasingly become a frequently used tool in emerging economies due to the changes of international and domestic economic environment. The flexibility of monetary policy helps emerging economies deal with increasingly internal and external uncertainty. In particular, for those emerging markets experiencing high-speed growth in the past several years, monetary policy has been heavily used to adjust money supply, interest rate, exchange rate and required reserve rate to achieve the desired policy goals. In the meanwhile, due to their inherent characteristics and drawbacks, stock markets in emerging economies are more easily affected by the changes of government monetary policies than in mature markets. This gives rise to an impact of government policies on the volatility of stocks that is as big as, if not bigger than, the impact of the intrinsic value on the volatility of stocks in the emerging markets. Traditional economic theory suggests a relationship between the stock market performance and information (e.g., Fama et al., 1969 and Mitchell and Mulherin, 1994). Shocks from changes of monetary policy have been shown to be one of the most important pieces of information in the stock market and affect the stock market through the “Wealth Effect”, “Liquidity Effect” and “Market Channel Effect” (Bernanke and Gertler, 2001, Modigliani, 1986 and Ralph and Thomas, 2001). While monetary policy is designed to impact the macro-economy, those policies, as monetary shocks, also affect the stock market indirectly. Moreover, these impacts on the stock market are significantly different during different time periods and market cycles. In some cases the stock market performance may even be conflicting with the traditional economic and financial theory. To explore the impacts of monetary shocks, many researchers focus on inflation, employment and output. There is evidence that the impacts of monetary shocks are significantly asymmetric (e.g., Cover, 1998, Karras, 1996, Kim, 2003 and Thoma, 1994). With the increasing volatility and risk spread in the global financial market, some studies have started paying attention to the impacts of monetary shocks on stock markets. It is a growing belief that changing monetary policies influence stock markets significantly, especially in emerging markets. Meanwhile, some studies attempt to explore various factors embodied in the monetary shocks that affect the stock market. Francesco and Stefano (2007) argue for the importance of money supply (M3) and the unit labor cost; Bernanke and Kutter (2005) emphasize the role of the federal funds rate which changes the market expectation, hence the stock market. Christos and Alexandros (2008) find that monetary shocks influence the stock market by affecting the expected discount factor, hence the pricing of the stock. Nieh and Lee (2001) show that the volatility of exchange rates influences the stock market in the short run but not in the long run. Phylaktis and Ravazzolo (2005) study five Asian emerging markets and find a positive relationship between exchange rate and stock market fluctuations, reinforcing the fact that exchange rate affects the stock market. The existing literature, as shown above, confirms the fact that stock markets are affected by monetary shocks. The propagation mechanism of these effects, however, is not fully understood. In particular, should we expect asymmetric impacts of monetary shocks on stock market as we have observed in the case of inflation, employment, and output? The current paper attempts to answer this question and fill the gap in the literature. Methodologically, most existing studies focus on time series analysis, especially VAR models, ARCH models and their variants to study the asymmetric effects (e.g., Garcia and Huntley, 2002, Gruen et al., 2007, Holmes and Wang, 2002 and Yun et al., 2010). Some scholars have explored the impacts of monetary shocks on the stock market, and analyzed the differences over different periods. However, to the best of our knowledge, there has not been a study that explores the impacts of monetary shocks during different stock market cycles (bull and bear markets). This paper, taking into account four monetary shocks (interest rate, exchange rate, reserve rate, and money supply), provides such an analysis based on the MSVAR–EGARCH model. Specifically, the current paper answers the following questions. Do monetary shocks from money supply, interest rate, reserve rate and exchange rate have asymmetric effects on stock markets? Are those impacts from different shocks varying over different market cycles? Is the timing of the bull/bear markets given by our endogenous model consistent with the timing of market cycles determined by exogenous criteria? Our study concentrates on the asymmetric effects of monetary shocks and contributes to the literature in the following ways. First, this paper verifies the relationship between stock market and monetary shocks originating from money supply, exchange rate, interest rate and reserve rate. We find that money supply and exchange rate shocks have stable positive impacts on the stock market, but shocks from interest rate and reserve rate exhibit asymmetric effects on the stock market. Second, this paper studies endogenous market cycles using a Markov switch model. It shows that the impacts from the monetary shocks are various in different market cycles. Third, we compare our estimates of endogenous regimes to the market cycles classified according to the exogenous criteria (Chen, 2007). It turns out that the endogenously estimated regimes are consistent with the exogenous market cycles. This effectively serves as a robustness check of our estimation of an endogenous model. In a word, this paper studies asymmetric effects of each shock on stock market in different endogenous regimes (market cycles). Our study focuses on monetary shocks and the stock market in China mainly because China owns the biggest stock market among all emerging economies after the “Full Circulation Reform for Listed Companies”. Studying the case of China helps us understand generally how monetary shocks affect stock market in emerging markets. The remaining part of this paper is structured as follows. Section 2 introduces theory. Section 3 describes the data and presents the empirical model. Section 4 provides the empirical results and analysis. Section 5 concludes.

In this paper, we use China's A share market as our research object and choose a MSVAR–EGARCH model to empirically estimate the asymmetric effects of monetary shocks on stock markets in emerging economies. Our analysis has indicated a close association between monetary shocks and their effects on stock market in emerging market. “Policy market” is still an important characteristic in China and other emerging markets. Monetary shocks have significantly asymmetric effects on stock market and its regime switch. Our robustness test indicates that the results of the model are reliable and effective. The following conclusions could be made from our study. First, among various factors in the monetary shocks, money supply and exchange rate shocks have robust impacts on the stock market. There is a significantly positive relationship between the changes of these two shocks and the rate of return of the stock market. Liquidity and asset values always influence the volatility of stock markets in emerging economies. Even if many factors contribute to the changing money supply in emerging market, changes of liquidity always affect market volatility regardless of the market cycles. The appreciation of assets brought by the rapid economic growth increases asset liquidity abroad and improves the attractiveness of domestic assets. In general, money supply and exchange rates play a significant role in the fluctuation of the stock market in an open economy. Second, the impact of interest rate shocks depends on market regimes. Current interest rate shock has significant impact but previous shocks produce asymmetric effects over time. The effects of current interest rate shock also vary in different regimes. Interest rate policy stabilizes the stock market in the bear market while its effects are not significant in the bull market. Third, reserve rate shocks also exhibit asymmetric effects on the stock market. Its impact depends on the market regime as well as its own status in the market. In the bull market regime, frequently changing reserve rate favors the role of expectation release. In the bear market regime, it favors the role of signaling. This leads to its asymmetric influence on the stock market. In a word, monetary shocks originating from the changes of policy in China and other emerging countries have asymmetric effects on stock market in different market regimes. The shocks bring about volatility in the stock market and the strength of the impact depends on market cycles. Changes of monetary policy aimed at other goals will increase the volatility and regime switch frequency in stock markets. Specifically, shocks from interest rate and reserve rate, occurred more frequently in recent years, play more important roles on the stock market volatility. The policy implication is that market participants and policy makers should pay more attention to the possible consequences of shocks originating from new monetary policies and, when policy is changing frequently, bring risk control into the stock market.