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Financial Crisis, Monetary Policy, and Stock Market Volatility in China

Author

Listed:
  • Cheng-si Zhang

    (School of Finance, China Financial Research Center, Renmin University of China)

  • Da-yin Zhang

    (School of Finance, Renmin University of China)

  • Jeffery Breece

    (Colby College, USA)

Abstract

This paper employs the Markov regime switching GARCH model to capture the nature of China's stock market volatility in 2003-2009. We find a significant regime shift in the volatility of the stock market when the People's Bank of China adopted an accommodative monetary policy in response to the global financial crisis of 2007-2008. After the structural change, China's stock market moved into a regime with increased volatility, which appears to be persisting into the near future. This finding suggests that the central bank of China should incorporate stock market volatility into its policy-making process.

Suggested Citation

  • Cheng-si Zhang & Da-yin Zhang & Jeffery Breece, 2011. "Financial Crisis, Monetary Policy, and Stock Market Volatility in China," Annals of Economics and Finance, Society for AEF, vol. 12(2), pages 371-388, November.
    • Handle: RePEc:cuf:journl:y:2011:v:12:i:2:p:371-388
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    References listed on IDEAS

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    Cited by:

    1. Wei Ma & Chuangyin Dang, 2013. "The Optimal Price of Default," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 145-167, May.
    2. Liu, Sun, 2017. "The impact of equity incentive plans on analysts’ earnings forecasts and stock recommendations for Chinese listed firms: An empirical study," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 29(C), pages 1-13.
    3. Hongliang Zhang & Betul Arda & Yuechan Lu & Senlin Miao, 2018. "Official Development Assistance and Foreign Direct Investment: An Empirical Investigation of Their Implications for Domestic Capital Formation in Africa," Annals of Economics and Finance, Society for AEF, vol. 19(2), pages 653-681, November.

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    More about this item

    Keywords

    GARCH; Stock market; Monetary policy; Regime switching;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G1 - Financial Economics - - General Financial Markets

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