A Research About Co-movement Between Chinese Foreign Exchange Market And Stock Market Based On Order Flow Of Information

With the deepening of the financial integration process, is bound to make thefinancial markets of countries contacted. So it’s insufficient to fully and objectivelyto study the inherent nature of a market through studying a separate market. Due tothe non-synchronization of the global financial markets trading time or successively,it’s available to forecast the change of other markets’ asset according to a marketprice changes. This paper contributes to the internal mechanism from the view of themicrostructure and investigates the order flow as the vehicle of informationconsidering market structure and trading mechanism. It’s not only more effectiveto research the relationship between the foreign markets and the stock markets butalso take into account information which is not captured by the macroscopicinformation. This will provide a theoretical basis for the investment operation of theforeign exchange market and stock market from the point of microscopic view, butcan also provide a reference for policy makers at a macro-level.The first this paper describes the background and significance of this paper andthe research of others, as well as make a summary of innovation of this study.Chapter II introduces comprehensive the theories of the relationship of the foreignexchange market and stock market. First make a brief introduction to the theoreticalbasis of the macro-level, and then describe detail from the theoretical basis of themicro-level between foreign exchange and stock markets. The third chapterintroduces the hypothesis and model taken into the Chinese structure of foreignexchange market and the stock market by learning from Francis’s(2006) model, andthe non-parametric estimation methods used in the empirical part. Chapter4, anempirical test using the parametric method with the statistics of foreign exchangemarket and stock market which is from2009February to2008March and make aconclusion that is characteristics of the order flow and the role of the relationship offoreign exchange market and stock market. Chapter5analyses deeply usingnonparametric estimates. This paper finds that the order flow can explain to a certainextent about the transfer process in the foreign exchange and stock markets. And the foreign exchange rate order flow can explain better than equity order flow. Also itfinds out that the asymmetry of transfer process of between the two markets. Inaddition, the mutation points are often accompanied by important policy which leadto mutations of the order flow to change the price of foreign exchange market andstock market.