The Impact of Financial Deregulation on the Relationship between Money Supply and Stock Prices

• Main Authors: Chun-Chi Chung, 鍾竣吉
• Other Authors: none
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/77433436589859998238

碩士 === 逢甲大學 === 財務金融學所 === 93 === Abstract Since the late 1970s, a series of financial deregulation occurred in Taiwan. The objective of financial deregulation is to replace government’s regulation with market mechanism. The purpose of this research is to study the impact of financial deregulation on the relationship between money supply and stock prices. The sample period in this research is from November 1980 to December 2004. First, the actual money supply is decomposed into the expected money supply and the unexpected money supply by using the two-stage least squares method. Then, the ADF unit root test is employed. The relationship between money supply and stock return is investigated by using vector autoregressive model, Granger-causality test, impulse response analysis, and forecasting error variance decomposition. From the empirical results, no causal relationship between money supply and stock return is found in the pre-deregulation period while stock return unidirectional cause money supply in the post-deregulation period. Financial deregulation provides efficiency for the relationship between money supply and stock return. No causal relationship exists between money supply and stock return in the pre-deregulation period may be due to financial regulation. The unexpected money supply unidirectional causes stock return. From the viewpoint of unexpected money supply, stock market is still not efficient.