| Foreign exchange market and stock market are two important parts of money market and capital market,respectively. The two markets influence each other for the countless ties between them. The stock price index and exchange rate represent the value of the foreign exchange market and stock market,stock price index can sensitively reflect any slight changes of entity economy; while exchange rate is the international price of currency purchase power,it also reflects the change of economic basic scope which determines the international purchase power of national currency. Since stock market and exchange market are indexes reflecting the force of national economy as well as prices in the two main financial sub-markets,there may be internal relations between the two,for example,the fluctuation of exchange rate may cause the fluctuation of stock price,vice versa. This article applies several econometric models and theories to analyze and discuss the linkage relation of China's stock price and exchange rate after the exchange rate reform on 21st,July,2005,and attempts to provide practical references to the policy makers and investors.The chapter 1 introduces the background of the research,meaning,research methods and research process,and briefly introduces the content and the structure of the thesis. It reviews the research work on the relation between exchange rate and stock price. Western scholars have already done careful and delicate empirical research on the interaction of the two markets,such as Abdalla and Murinde (1997),they analyzed the stock price and exchange rate of India,Korea,Pakistan and Philippine,and proved that the exchange rate change has an unidirectional influence on stock price in three of them,except Philippine. Granger's empirical analysis (2000) believed that,exchange rate and stock price interact closely in most countries in Asia (like Malaysia,Hongkong,Singapore,Thailand etc.).China's scholars have also researched on the relationship between RMB exchange rate and stock price under the unique circumstance of China,but they do not have the same opinion to one another. For example,R.F.Chen (1999) believed that the relationship between China's foreign exchange market and stock market is unconspicuous; B.Q.Zhang,Y.Li's empirical analysis (2002),based on the daily data from 27th,Dec,1993 to 17th,April,2001,resulted in a co-integration relation between the RMB exchange rate and the A share index of Shanghai and Shenzhen Stock market.The various opinions of the interaction of China's stock market and exchange rate are mainly because of two reasons: firstly,before the exchange rate reform on 21th,July,2005,RMB exchange rate highly depends on the governmental intervention,which make it less elastic and can not exactly reflect the supply and demand of China's foreign exchange; secondly,foreign exchange does not have free convertibility as a capital account,which leads to the inconsequence of the stock price formation mechanism. It can not bring enough information to anticipate risks of the companies that come into the market. All these above make the relationship between RMB exchange rate and stock price not that clear as it should be.The chapter 2 briefly introduces the theories of exchange rate and stock pricing and reviews the theoretical basis of the interaction between stock price and exchange rate. First,we introduce several traditional exchange rate theories,including the theory of purchasing power parity (PPP) and the theory of interest-rate parity,etc. Then we go with several traditional models of stock pricing , including the capital asset pricing model (CAPM)and the arbitrage pricing theory(APT). And at last,these theories are applied to analyze the relationship between exchange rate and stock price,provide that the market is balanced.The chapter 3 is the causality tests of the relationship between RMB exchange rate and stock price after the exchange rate reform. Firstly,we introduce the testing methods by which differentiate stationary series and unit root test,ADF testing method. Secondly,the co-integration theory is introduced,we can use Johansen trace test to determine co-integration relation of time series and choose the best co-integration relation. The co-integration testing is used to determine the long-run equilibrium relationship between two or more variables. Thirdly,we introduced the Granger causality testing to determine the casual relationship between the two series. The Granger testing causality can not only give us the information of which one determines the other,but it also tells us the level of explanation between the two variables. Then we test the daily RMB exchange rate (the middle exchange rate) from 21st,July,2005 to 31st,Oct,2007 which is publicized by People's Bank of China and the daily closing price of Shanghai stock index from 21st,July,2005 to 31st,Oct,2007. The conclusion is as follows: RMB exchange rate has the co-integration with A,B share index of Shanghai and Shenzhen stock market; RMB exchange rate has obvious unidirectional causality with Shanghai and Shenzhen stock market. The Granger causality test shows that the exchange rate is the cause and the stock index is the aftermath.The chapter 4 further analyzes the transmit media between RMB exchange rate and stock price,we use vector auto-regression model (VAR) to explain how the variables influence the relationship between stock price and exchange rate. We theoretically analyze the following models: the flow-oriented models of exchange rate determination,the stock-oriented models of exchange rates and the portfolio balance approach. We applies VAR to further analyze the five chosen variables,Shanghai composite index (SZZS),monthly inport (INPORT),monthly export (EXPORT),monthly money supply (M2) and RMB exchange rate. Firstly,we use ADF to test the variables and find they are typical I (1); secondly,the Johansen testing shows a co-integration relation between them; then through VAR model,we find the variables are mainly influenced by the third lagged period. Based on the above,we use impulse response functions and variance decomposition to get further information of the relationship of the five variables.The last chapter is conclusion and the economic policy advice... |
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