| In recent years, China’s capital market, especially the stock market had entered a rapid development stage. This is not only reflected in the stock market size and growth, the increasing number of listed companies, but also embodied in a series of stock market system construction and perfect function represented by margin trading, stock index futures, Shanghai and Hong Kong through, stock index options. At the same time, The market-oriented reforms such as for interest rate and exchange rate in the financial sector of our country have carried out an orderly progressive and have made gratifying achievements. To October 24,2015, after the central bank interest rate policy adjustment, the up-floating range of Chinese financial institution deposit interest rate has been completely canceled from as high as 1.5 times of the original benchmark interest rate. This is another landmark event in Chinese interest rate market-oriented reform process after the floating range of loan interest rate is completely free. At the same time, The floating range of the RMB exchange rate has gradually expand, the RMB exchange rate formation mechanism has become more flexible.Based on the fact that Chinese stock market has been developing rapidly, and interest rate and exchange rate market-oriented reform has been moving up gradually, a natural question is as a significantly important financial asset price in economic life, what is the impact of interest rate and exchange rate Changes on stock market price. Or put a further way, what is the co-movement between financial market trends. This issue has gained scholars’ broad attention and research. The significance of this problem is that:on the one hand, it is helpful for investors to grasp the impact of interest rate and exchange rate changes on stock market, so they can adjust their investment strategy according to changes of interest rate and exchange rate. On the other hand, this study also provides empirical evidence to financial regulators and policy makers to grasp the can provide empirical evidence on issues such as the risk prevention among financial markets, policy decisions during interest rate and exchange rate market-oriented reform process.The research methods and conclusions on this problem are diverse, scholars have used a variety of econometric tools, collected samples obtained at different times and gained different conclusions, therefore, we can say that the impact of interest rate and exchange rate on the stock price is a question of empirical research needs. Reference on the experience of previous studies, after introducing the theory on how the interest and exchange rates affect stock price, I collect the stock index, interest rate, exchange rate data ranging from June 1,2010 to May 21 August 2015, and then use these data to build a VAR model followed by estimating VAR model, running Granger causality test, impulse response, Johansen cointegration test analysis tools to empirically analyze the influence of interest rate and exchange rate on stock prices, and the different impact of interest rate and exchange rate on the share price has been compared. Then there is the empirical results of a detailed explanation.Finally conclusions reached as follows:firstly, interest and exchange rates does not have a significantly different effect on different style stock index; secondly, the exchange rate and stock index exists bidirectional causality, no causal relationship between interest rate and stock index; thirdly, the stock index and interest rate, the exchange rate maintains a long-term cointegration relationship, however for the respective cointegration test, there exists no cointegration between stock index and interest rate, but exists cointegration relationship between stock index and exchange rate.Based on these empirical results, this paper presents relevant policy recommendations. I proposed that it is in the short term that the stock market investors should concern about the impact of exchange rate movements on stock market and corresponding stock market sector effect, and in the light of the impact of interest rate on the stock market is with a lag, the long term interest should be concerned about the trend of interest rate; I recommendate the Financial regulators to cultivate a good stock market investment environment, to improve the market system construction, and to guide investors forming value investment philosophy. Finally, the paper explains the improvement directions of this paper from three aspects, they are the defects of the VAR model in the empirical research, the industry or plate effect of interest rate and exchange rate on stock market, the nonlinear relationship between interest rate, exchange rate with stock market index. |
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