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The short-term spillover effects of the Fed on Chinese financial market The overshooting model or the portfolio balance theory

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  • Feiyan Zhang
  • Dewen Chen

Abstract

Under the framework of overshooting model and portfolio balance theory, this paper analyses the short-term spillover effect of Fed’s QE on asset prices in China. Policy shocks "overall events" have a significant impact on China's financial market. China's debt full price index, Shanghai-Shenzhen 300 and Nan-Hua Futures Composite Index have increased significantly, while the "single event" issuance has no notable impact. Further research shows that the interest rate transmission mechanism has a striking impact on bonds, the exchange rate transmission mechanism has a remarkable impact on stocks, and the expected transmission mechanism has a notable impact on futures. China should comprehensively use interest rate, exchange rate and expected management tools to avoid the accumulation of financial bubbles. JEL classification numbers: G11Keywords: overshooting model, portfolio balance theory, Fed’s QE, Exchange rate channel, Interest rate channel, expectations channel.

Suggested Citation

  • Feiyan Zhang & Dewen Chen, 2019. "The short-term spillover effects of the Fed on Chinese financial market The overshooting model or the portfolio balance theory," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 9(5), pages 1-5.
    • Handle: RePEc:spt:apfiba:v:9:y:2019:i:5:f:9_5_5
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    References listed on IDEAS

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