Research On The Nonlinear Causality Relationship Between Stock Price And Exchange Rate

As the evolution of the economic globalization，each country begin to adoptfloating exchange rate system gradually, which gives the free flow of foreignexchange market much support, and encourages and supports international capitalflows to some extent. So this macro variable has always been attracting the attentionof the academic circles. While the stock is a part of national financial capital market,and of vital importance to a country’s economy. As a country’s economic "barometer"real-time existing reflects status and change of a country’s economy. In the openeconomy, the exchange rate is the links of national economy in the internationalmarket, and naturally they should have a strong relationship. But according to thedifferent scholars in different countries use different analysis index, the relationshipbetween the two is fuzzy and uncertain and have not reached a consensus worldwidecommon view whether they have the two-way or one-way, positive or inverserelationship. On the one hand, the cause of this result is due to different nationaleconomic environment, social form; On the other hand also we should consider theaccuracy of the research methods and study on index selection.Due on July21,2005, our country has carried on the exchange rate reform, sothis paper on the reform of exchange rate after excluding the special number of dayswithout data as the research object, through the analysis of the traditional flow theoryand inventory theory, using the TAR (threshold autorgressive) model to our countrythe hushen300index and the relationship between th eyuan-dollar exchange rate forempirical research, using cointegration test, Granger causality test and VEC (errorcorrection model), the application research on causal relationship between each otherhoping that through the study of the relationship between the results it will do good tothe forecast later.In this paper, we come to the following conclusions: short-term hushen300index and the yuan-dollar exchange rate is a two-way causal relationship, the value of the yuan down, the rise of the exchange rate will cause the rise of index, and the riseof the stock index can also cause the exchange rate rise and fall in the value of theyuan, but in the long run, regardless of which segment they belong to exchange rateand the hushen300index have only unidirectional causality. The changes of theyuan-dollar exchange rate will affect the stock index of positive change, namelyexchange rates to rise, the value of the yuan lower will cause the rise of hushen300index. In the short term, the classic flow orientation model and stock orientationmodel can be applied to explain the process of causation. In the long run, however,mainly caused by a country’s current account and trade balance situation, changes ofthe exchange rate will affect the international competitiveness of domestic exports,thus affecting the import and export related domestic enterprise’s trade and economicdevelopment speed, but also affect the change of the yuan-dollar exchange ratedenominated in foreign currency transaction costs and exposure risk problem, whichcan cause inflation that affect stock prices, along with which stock index changes, andthe change of exchange rate will also affect the company’s financial condition bychanging the product competitiveness and the value of assets and liabilities in foreigncurrencies, which affects stock price and the stock index.