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The relationship between inflation, monetary policy and stock returns: Evidence from China

Bao, Rui LU and Han, Xinxu LU (2021) NEKN02 20211
Department of Economics
Abstract
This paper aims to study the relationship between inflation, stock returns and monetary policy. The basic conclusion is: through the single-equation analysis of the Fisher effect, it is concluded that there is a negative correlation between inflation and stock returns in China. By examining the relationship between stock returns, the real economy and monetary policy, we find that the expected change of real economy has no significant relationship with the expected stock returns and the increase of money supply growth rate will lead to the decline of the expected stock return rate in China. On this basis, a VAR containing four variables is used to provide further evidence for the role of inflation, stock returns and monetary policy. Then,... (More)
This paper aims to study the relationship between inflation, stock returns and monetary policy. The basic conclusion is: through the single-equation analysis of the Fisher effect, it is concluded that there is a negative correlation between inflation and stock returns in China. By examining the relationship between stock returns, the real economy and monetary policy, we find that the expected change of real economy has no significant relationship with the expected stock returns and the increase of money supply growth rate will lead to the decline of the expected stock return rate in China. On this basis, a VAR containing four variables is used to provide further evidence for the role of inflation, stock returns and monetary policy. Then, an impulse response model is carried out to find that China’s inflation has a certain influence on China’s stock returns. Finally, according to the stock return model under long-term currency neutrality, it is suggested that the intermediary target of monetary policy can take the stock price as the auxiliary reference target. (Less)
Please use this url to cite or link to this publication:
author
Bao, Rui LU and Han, Xinxu LU
supervisor
organization
course
NEKN02 20211
year
type
H1 - Master's Degree (One Year)
subject
keywords
Inflation, Stock return, Monetary policy
language
English
id
9049804
date added to LUP
2021-10-26 08:15:59
date last changed
2021-10-26 08:15:59
@misc{9049804,
  abstract     = {{This paper aims to study the relationship between inflation, stock returns and monetary policy. The basic conclusion is: through the single-equation analysis of the Fisher effect, it is concluded that there is a negative correlation between inflation and stock returns in China. By examining the relationship between stock returns, the real economy and monetary policy, we find that the expected change of real economy has no significant relationship with the expected stock returns and the increase of money supply growth rate will lead to the decline of the expected stock return rate in China. On this basis, a VAR containing four variables is used to provide further evidence for the role of inflation, stock returns and monetary policy. Then, an impulse response model is carried out to find that China’s inflation has a certain influence on China’s stock returns. Finally, according to the stock return model under long-term currency neutrality, it is suggested that the intermediary target of monetary policy can take the stock price as the auxiliary reference target.}},
  author       = {{Bao, Rui and Han, Xinxu}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{The relationship between inflation, monetary policy and stock returns: Evidence from China}},
  year         = {{2021}},
}