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Research on the Impact of RMB Real Exchange Rate Volatility on Stock Return

Author: LiHui
Tutor: WangYaJie
School: Harbin Institute of Technology
Course: Finance
Keywords: Real effective exchange rate of RMB Exchange rate volatility Stockreturn Three-factor model Price of risk
CLC: F832.6
Type: Master's thesis
Year: 2013
Downloads: 2
Quote: 0
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Abstract


After Chinese exchange rate reform in2005, the fluctuations of RMB exchangerate started getting more and more close the market. In this special period ofcontinuous appreciation of RMB, as the core of Chinese financial markets, howwould the stock market be affected? Whether will the stock price and stock returnchange? These problems should not be ignored. In order to study the impact ofexchange rate volatility on Chinese stock market, this paper discusses how the RMBreal exchange rate affects the stock return of Chinese listed companies, and analysisthe root cause of exchange rate risk’s influence on Chinese listed companies equityrisk premium.First of all, in terms of theory, the paper sorts out the traditional theories of thefactors affecting stock return, focusing on the empirical significance ofFama-French three-factor model. The paper implants the exchange rate volatilityfactor into the three-factor model to establish new influencing factors model ofstock return containing exchange rate volatility factor, which provides a theoreticalbasis for the subsequent empirical research.Secondly, in terms of empirical, the paper deals with the data of A-shared listedcompanies from2008to2012through some processing such as classification,grouping and establishing regression factors on the basis of the newly establishedregression model, and tests each factor’s influence on stock returns risk premiumthrough two-stage regression. Finally explores how the exchange rate affects thestock market according to the empirical results.The paper obtains new influencing factors model of stoch return with exchangerate volatility through the research of the overall state and the various sectors of theChinese stock market, and further finds the risk represented by the factors. Theexchange rate volatility factor introduced in the paper has a good explanation on therisk premium of stock return, which expands the scope of the determinants of stockreturns theoretically and gives some enlightenment for the relationship between thestock market and foreign exchange market.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Exchange rate,foreign financial relations
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