Factors analysis on liquidity surplus and a rise of Chinese stock markets

With macroeconomics as a theoretical basis, in this paper there are econometric methods (Error-correction Model, VAR Model, etc.) to analyze a multitude of domestic and foreign data, including data in monetary markets, stock markets, and foreign exchange markets. Furthermore, it estimate that there was about 6000 billion yuan surplus of capital in Chinese macro economy, find that redundant money supply was the main reason for liquidity surplus and it was the most important reason for China bull market in 2007. Our research also contains the other factors for bull market in the Chinese stock market in 2007 and explains the interactions between exchange market and stock market.