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The Study on the Relationship between the RMB/USD Exchange Rate and China’s Stock Market

Author: DanGuoFei
Tutor: TianChengShi
School: Dongbei University of Finance
Course: Statistics
Keywords: the RMB exchange rate the stock market Johansen cointegration test Granger causality test VAR model BV-GARCH model
CLC: F832.52;F832.51
Type: Master's thesis
Year: 2010
Downloads: 172
Quote: 0
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Abstract


In 2005, RMB exchange rate and the stock market reform, the RMB exchange rate is more flexible, the stock market realized the full circulation of shares, the relevance strengthened between the stock market and the RMB exchange rate. So, how about the relation between the two? This paper is to study.Before the reform of the RMB exchange rate, the research on the relation between the stock market and the exchange market was inadequate among Chinese scholars.About the reason,before the reform of the RMB exchange rate, the RMB exchange rate was pegged to the dollar,which is the fixed exchange rate, at the same time,the development of the Chinese stock market was imperfect, in the A-share market of the listed company,which formed "different stocks, different prices and different shares" of the system and structure of market,which severely affected the stock prices. Therefore, in this condition,there was no correlation between the stock market and the exchange market, so,the study of relation about the two is not meaningful,After the reform of the stock market and the exchange market,although, the literature on relation between the two gradually increased,the time of reform is short, different index, different sample periods,which result in different results,so,it is difficult to reach a consensus on the relation between the stock market and the exchange market. At present, it have been implemented for 4 years that the reform of the stock market and the exchange market, the effect of reform has appeared, Therefore, under this background, the research on the relation between the stock market and the exchange market, which has practical significance.Since Chinese stock market and exchange market are different from developed countries’,its time is short.Finding out the similarities and differences from developed countries’through study,then,we can study distinctiveness of Chinese financial market in-depth and find out the reason of the differences.so, on one hand, we can avoid from applying mechanically theory of mature market, on the other hand, which can provide theoretical references in formulating relevant policies for China. At the same time, China is reforming financial market gradually and has achieved preliminary effect. However, with the increasing openness of world economy and finance, the degree of the integration of international financial market is gradually deepened. How will we face the complex domestic and international economic and financial situation? How will we reform the financial markets in the next step? Now, with the further reformation of the stock market and exchange market, we must pay attention to the correlation between each financial market. When advancing reformation of each financial market, we must consider the overall impact on other financial markets to avoid one-sidedness and blindness of policy.Therefore, depth study of the relationship between the China’s stock market and exchange market can help us to find the inherent relationship between them and the transmission mechanism. The study can also contribute to a profound understanding of the current stock and exchange markets, which are changing dramatically. It will have important theoretical and practical significance to prevent financial risks and improve China’s stock and exchange markets.Firstly, It has carried on the review to the domestic and foreign experts’and scholars’views and methods, It had pointed out formerly studied the characteristic and the existence problems, this provides reference for study the relationship between the stock market and the RMB exchange rate. Then, he related theory about the stock price and exchange rate, the pathway of the relation between the two, are summarized systemicly,using Johansen cointegration test, Granger causality test, VAR model and BV-GARCH model, from the angle of linear and nonlinear, dynamic empirical research is carried out in the relations between the stock market and the exchange rate. Research shows that:in the long run, we found the stock price and the exchange rate cannot exist the long-term stability and co-integration relationship; In spillover of price, there was only short-term one-way spillover effect from the exchange rate market to the stock market;In volatility spillover aspect, there was significant spillover effect from the exchange rate market to the stock market,however, there was no significant spillover effect from the stock market to the exchange rate market,so,there was volatility spillover of asymmetry between the stock market and the exchange rate market. Then, empirical conclusions were analyzed and explained by the basic theory of correlation about stock price and exchange rate, revealing the deep reason of the results. Finally, in the relevant policy Suggestions, after combining with the actual situation in our country providing four advices which are the improvement of the exchange rate market and the stock market, the progress of market-oriented interest rate reform, the reasonable guidance of expecting etc.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial market
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