Research On Interaction Effects Among RMB Exchange Rate Dollar Index And Price Of A-share

With the continuous development of the global financial market, the relationshipbetween foreign exchange market and the stock market is much closer. The exchangerate and the share price respectively represent the prices of foreign exchange market andstock market, when the flow of capital is free and information communication iseffective, foreign exchange market and the stock market will show some of thecollaborative change trend, the prices of two markets will be affected by each other.China stock markets are in the development period, analysis of the formationmechanism of exchange rate in theoretical will have a more profound understanding,and it will be good for analyzing the influence of other economic variables on exchangerate. Research on the mechanism of exchange rate and stock market is very important tothe maturity and stability of China stock market.This paper reviews the researches about the relationship between exchange rateand stock market. It also analyzes the theory of exchange rate and the approach ofexchange rate and influences stock market, which mainly including import and exporttrade, market interest rates, investors’psychological expectations and commodityprices,and construct the theoretical framework. Through the analysis of previous researchprocess, dollar index is added to the basis of the model, and the empirical researchmodel of the paper is established, which include the RMB exchange rate, Shanghai andShenzhen300index and the dollar index.Based on the trade data from July21,2005to December30,2011, ADF stationarytest, Granger causality test and related analysis are used. Impulse response analysis andvariance decomposition are used to analyze the vector autoregressive (VAR) model. Theresults of the study show that, there are unidirectional causalities between the dollarindex and the RMB exchange rate, the dollar index and A-share stock price, the RMBexchange rate and A-share stock price. The rise of exchange rate and the dollar indexhas a certain role in driving and ego enhancement to A-share stock price. With theincrease of the expected, the explanatory powers of the rise of RMB and the dollarindex to the A-share stock price strengthen gradually, which is the same as A-sharestock price to the exchange rate of RMB. It is important to analyze how the price ofA-share stock will change when exchange rate of RMB and US dollar index are influctuant process.