Abstract
To investigate whether the European Central Bank’s frequent funding action can strengthen the stock market or not, the actual relationship between money supply and stock market in Europe deserves research, especially during the debt crisis. This article first presented theoretical analysis on the channels through which money supply influences stock market. The study was then verified by empirical analysis based on ADF unit root test and Johansen cointegration test. By creating cointegration model and Vector Error Correction Model and carrying on Granger causality test, further examinations revealed the interaction between money supply and stock market capitalization in the short and long term. The results suggest that stock market capitalization is conversely related to money supply in the long run, whereas money supply has positive impact on stock market capitalization in the short-term, but it’s not the Granger reason of stock market capitalization. The economic significance were summarized in the last part, then the specific proposals were put forward.
This is a preview of subscription content, log in via an institution.
Buying options
Tax calculation will be finalised at checkout
Purchases are for personal use only
Learn about institutional subscriptionsPreview
Unable to display preview. Download preview PDF.
References
Dickey, D.A., Fuller, W.A.: Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica 49, 1057–1072 (1981)
Engle, R.F., Granger, C.W.J.: Cointegration and error correction: representation, estimation and testing. Econometrica 55, 251–276 (1987)
Granger, C.W.J.: Development in the study of cointegrated economic variables. Oxford Bulletin of Economics and Statistics 48, 213–228 (1986)
Johansen, S.: Statistical analysis of cointegrating factors. Journal of Economic Dynamics and Control 12, 231–254 (1988)
Johansen, S., Juselius, K.: Maximum likelihood estimation and inference on cointegration with applications to the demand for money. Oxford Bulletin of Economics and Statistics 52, 169–210 (1990)
Zhu, D.: An empirical analysis on the effect of the stock market on money demand in China. Transaction of Shanghai Finance and Economics University 6, 3–10 (2002) (in Chinese)
Sun, H., Ma, Y.: The relationship between monetary policies and the stock market in China. Economic Research 7, 22–27 (2003) (in Chinese)
Mak, W.M., Vonk, W., Schriefers, H.: Animacy in Processing Relative Clauses. Journal of Memory and Language 54, 466–490 (2006)
Ehrmann, M., Fratzscher, M.: Taking Stock: Monetary Policy Transmission to Equity Markets. Journal of Money, Credit and Banking 36(4), 719–737 (2004)
Ioannidis, C., Kontonikas, A.: Monetary Policy and the Stock Market: Some International evidence. Department of Economics, University of Glasgow (2006)
Qiao, G., Liu, Z.: The Empirical Analysis of the relation between money supply and the stock market. Economic Management 24, 12–14 (2007) (in Chinese)
Chen, S.: Does Monetary Policy Have Asymmetric Effects on Stock Returns? Journal of Money Credit and Banking 39, 667–688 (2007)
Ai, F.: Chinese monetary number and name of the national income relationship of empirical study. Journal of Collective Economy, Academic Study 8, 32–34 (2008) (in Chinese)
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2012 Springer-Verlag Berlin Heidelberg
About this paper
Cite this paper
Li, Y. (2012). Empirical Study on the Relationship between Money Supply and Stock Market in Europe. In: Liu, B., Ma, M., Chang, J. (eds) Information Computing and Applications. ICICA 2012. Lecture Notes in Computer Science, vol 7473. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-34062-8_70
Download citation
DOI: https://doi.org/10.1007/978-3-642-34062-8_70
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-34061-1
Online ISBN: 978-3-642-34062-8
eBook Packages: Computer ScienceComputer Science (R0)