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The Interaction between Interest Rates and Stock Returns:A Comparison between China and US

Chen, Haian LU and Hu, Di LU (2015) NEKN02 20151
Department of Economics
Abstract
The relationship between monetary policy and stock market has been discussed since 1970s, but it is still one of the hot topics due to the changing market condition over time among different countries and the development of empirical methodologies. Owing to the fact that the stock market of China has involved in the fast-growing of Chinese economy, identifying the relationship between interest rates and stock returns in China becomes more attractive. This paper estimates the interaction between interest rates and stock returns in China by employing the structural vector autoregressive (SVAR) models with a long-run restriction, and the interaction in US is analyzed as a comparison. By analyzing the impulse responses and variance... (More)
The relationship between monetary policy and stock market has been discussed since 1970s, but it is still one of the hot topics due to the changing market condition over time among different countries and the development of empirical methodologies. Owing to the fact that the stock market of China has involved in the fast-growing of Chinese economy, identifying the relationship between interest rates and stock returns in China becomes more attractive. This paper estimates the interaction between interest rates and stock returns in China by employing the structural vector autoregressive (SVAR) models with a long-run restriction, and the interaction in US is analyzed as a comparison. By analyzing the impulse responses and variance decompositions which are generated from the SVAR models, we confirm the interaction between interest rates and stock returns in China. However, compared to that in US, the magnitude of interaction in China is much smaller, showing that the effectiveness of interest rates as a monetary policy tool is still low. (Less)
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author
Chen, Haian LU and Hu, Di LU
supervisor
organization
course
NEKN02 20151
year
type
H1 - Master's Degree (One Year)
subject
keywords
interest rates, stock returns, structural VAR models
language
English
id
5472827
date added to LUP
2015-06-29 13:22:55
date last changed
2015-06-29 13:22:55
@misc{5472827,
  abstract     = {The relationship between monetary policy and stock market has been discussed since 1970s, but it is still one of the hot topics due to the changing market condition over time among different countries and the development of empirical methodologies. Owing to the fact that the stock market of China has involved in the fast-growing of Chinese economy, identifying the relationship between interest rates and stock returns in China becomes more attractive. This paper estimates the interaction between interest rates and stock returns in China by employing the structural vector autoregressive (SVAR) models with a long-run restriction, and the interaction in US is analyzed as a comparison. By analyzing the impulse responses and variance decompositions which are generated from the SVAR models, we confirm the interaction between interest rates and stock returns in China. However, compared to that in US, the magnitude of interaction in China is much smaller, showing that the effectiveness of interest rates as a monetary policy tool is still low.},
  author       = {Chen, Haian and Hu, Di},
  keyword      = {interest rates,stock returns,structural VAR models},
  language     = {eng},
  note         = {Student Paper},
  title        = {The Interaction between Interest Rates and Stock Returns:A Comparison between China and US},
  year         = {2015},
}