The impact of monetary policy announcements on stock market: Evidence from China

• Main Author: ZENG, Yu
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2010
• Subjects: monetary policy; stock market; financial constraint; event study; Econometrics; Finance
• Online Access: https://ink.library.smu.edu.sg/etd_coll/239; https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1238&context=etd_coll
• Institution: Singapore Management University

In this paper we examine how stock returns in China respond to monetary policy announcements made by PBC in a short term around announcement day. We employ a nonparametric event-study method to investigate such reactions. We arrive at the following conclusions. Firstly, there is information leakage of monetary policy changes, which is verified by significant changes in stock returns before monetary policy announcement and quitness of stock market after announcement. Secondly, financially constrained and financially unconstrained firms respond quite similarly to monetary policy shocks, which disobeys credit channel of monetary policy transmission in the short run. Thirdly, reserve ratio changes cause stronger responses than loan interest rate changes, which demonstrate power of reserve ratio as a monetary policy instrument.