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The Asymmetric Effects of Official Interest Rate Changes on China’s Stock Market During Different Market Regimes

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  • Xin Lv
  • Weijia Dong
  • Fang Fang

Abstract

We investigate the effects of China’s official interest rate changes on its stock market. We first prove there is a negative relationship between official rate changes and stock returns, as measured by cumulative abnormal returns (CARs). Then, we divide the Chinese stock market into three regimes (bull, medium, and bear) and indicate that official rate changes have asymmetric effects on CARs during different market regimes, although these effects differ from the effects of interest rate changes on the U.S. market. Specifically, official rate changes have the largest negative effects during bear markets and the smallest effects during medium markets.

Suggested Citation

  • Xin Lv & Weijia Dong & Fang Fang, 2015. "The Asymmetric Effects of Official Interest Rate Changes on China’s Stock Market During Different Market Regimes," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(4), pages 826-841, July.
  • Handle: RePEc:mes:emfitr:v:51:y:2015:i:4:p:826-841
    DOI: 10.1080/1540496X.2015.1047305
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    Cited by:

    1. Haizhen Yang & Xiangjuan Cheng & Qiubin Huang & Qiao Wang, 2019. "Systemic Risk in the Chinese Stock Market Under Different Regimes: A Sector-Level Perspective," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(6), pages 665-679, June.

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