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Monetary policy tick by tick: Empirical analysis of China's A-share market

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2 Author(s)
Mingting Kou ; Dept. of Finance, Northwest A&F Univ., Yangling, China ; Xinsheng Lu

This paper investigates the impact of China's monetary policy changes on A-share market by intra-day data, which makes a special contribution to the existing literature by designing the “event windows” with tick data. This method solves the endogeneity problem between the financial market and the monetary policy, and also allows us to separate monetary policy effect from other possible macroeconomic releases. It thus provides us an effective technical back up for unbiased estimation of monetary policy effect on the stock market. We have found a significant and persistent monetary policy effect on the A-share market, and that the most significant responses of market returns to monetary policy adjustments occur in the “event window” that contains the policy announcement. Our empirical results also indicate that monetary policy is not well anticipated by market participants until the policy releases.

Published in:

Information and Financial Engineering (ICIFE), 2010 2nd IEEE International Conference on

Date of Conference:

17-19 Sept. 2010