An Empirical Study on the Relationship Between Rmb Exchange Rate and Stock Price
|School||Huazhong University of Science and Technology|
|Keywords||Stock price RMB exchange rate Empirical analysis VEC model Unit root Cointegration|
On July 21, 2005, People’s Bank of China announced the RMB exchange rate formation mechanism reform. China began to institute a regulated, managed floating exchange rate regime based on market supply and demand and in reference to a basket of currencies. That is, RMB exchange rate won’t peg dollar, but institute a kind of more flexible regime, the fluctuant scale will be expended, a more flexible RMB exchange rate mechanism forms, from that an, the relationship between exchange rate and stock price has been more and more attention of researchers.This paper analysis the relationship between exchange rate and stock price from the way of theoretical and empirical.In the theoretical analysis, firstly, this paper introduces the flow-oriented model and the securities-oriented model. Flow-oriented model points that the current account determines the exchange rate between countries, exchange rate is the reason for the change of stick price; securities-oriented model emphasizes the capital and financial account in the exchange rate decision, that the exchange rate and the associated stock price conduction mechanism is from stock to the exchange rate. Secondly, this paper analysis several major transmission paths between exchange rate and stock prices, including import, export, international capital flows, interest rate, money supply and so on.In the empirical analysis, this paper adopts exchange rate, trade balance, foreign exchange, SSE Composite Index and interest rate from July 21, 2005 to October 10, 2008, uses the VAR method which was used widespread by domestic and foreign researchers in the analysis of this issue, this paper also involves correlation test, co-integration test, the VEC modeling, the causality test and analysis of Prediction variance, and concluded the following conclusions:(a) It has a negative relationship between the exchange rate and the stock market, exchange rate and the stock price cointegrated, they show a long-term equilibrium relationship(b) It has a two-way causal relationship between stock price and exchange rate, but the contribution of each is small. (c) The speed of tow-way impact between the exchange rate and the stock market is different, the exchange rate impacts the stock market quickly, but the stock market firstly impact exchange rate weakly, and then strongly. (d) In the presence of the interest rate, trade balance, foreign exchange reserves, the exchange rate and stock price still show a long-term equilibrium relationship.At the end of this paper, combined with the theoretical and empirical analysis, we give some targeted policy, including improving the exchange rate market and the stock market, promoting the marketization of interest rate and so on.