Stock Performance after the US Federal Reserve Raised its Benchmark Interest Rate: Evidence from the ChiNext market in China

Abstract

In 2022, the US Federal Reserve raised its interest rate, which influenced the ChiNext market due to the spillovers. This paper utilizes ARIMA model to analyze closing prices from 2010 to March 2022. It will find out the relationship between the interest rate raised by the Fed and the ChiNext market. Influences on the ChiNext market are different in the short run and the long run. In the short run, raised interest rate has a positive impact on the closing prices, while that in the long run has an inverse impact. On of the possible reasons is that some stocks are related to exports and are periodic. Another reason is the time lag. Raised interest rate has further impact on the ChiNext and China’s stock market including RMB depreciation and capital flight. The research is a supplement for literature as it focus on the ChiNext market. Related studies lack. It will provide guidance to researchers who are exploring the correlation between interest rate and China’s stock market. It find outs the different effects of short-run and long-run and provide more perspectives from the causes of the difference and long-run implications. Due to the time lag, policymakers may not respond to changing interest rates in time. To minimize the potentially detrimental effect, they could employ forward guidance to communicate with the public about the expected future direction of monetary policy.