| As RMB officially enters into the SDR “Currency Basket”,it has become the fifth basket currency of the SDR.After that,China promulgates a series of foreign exchange policies,which increase the speed of the internationalization process of the RMB.And coupled with the continuous reform and innovation of the interest rate mechanism in recent years,the level of interest rate liberalization in China continues to deepen.As an emerging stock market,the institutional structure and the risk awareness of the Chinese stock market investors are even more immature compared to the developed Western stock markets.However,with the deepening marketization of interest rates and exchange rates,as well as the continuous optimization of the stock market mechanism,the conduction mechanism between interest rate,exchange rate and stock price fluctuations in China will become much more effective.Therefore,with the internationalization of RMB,the liberalization of interest rate,and the gradual realization of the leading role of the market mechanism,it is of great practical significance to understand the variation between interest rates,exchange rates and stock price volatility.The article initially uses literature research methods to comprehensively review the literature on the relationship between interest rates,exchange rates,and stock prices at home and abroad.Then it elaborates the theory and conduction mechanism of the relationship between the above three variables,and briefly introduces the development and current situation of the three markets in China that they affiliated.Furthermore,on the basis of previous theories,the monthly data from July,2005 to December,2017 was selected regarding the 7-day Interbank Offered Rate,RMB exchange rate against the US dollar,and Shanghai Composite Index,which were used respectively to representing interest rates,exchange rates,and stock prices.And then figure out the correlation between interest rates,exchange rates,and stock prices by establishing a traditional VAR model and a TVP-SV-VAR model that has time-varying characteristics.The empirical results are as follow:Firstly,the volatility of the stock price under the impact of interest rate has time-varying features and structural changes,and the rise of the interest rate will increase the stock index temporarily,but the stock index will fall eventually.The rise in the stock price will lead to an increase in the interest rates,but the influence may have a time-lag.Secondly,the volatility of the exchange rate has time-varying features under the influence of stock index variables,and the exchange rate will show a downward trend under the impact of stock price volatility eventually.The Shanghai Composite Index has time-varying features under the impact of exchange rate,and the increase in the exchange rate will lead the stock price to fall in the short term,but the stock price will rise eventually.Thirdly,the exchange rate has always shown a downward trend under the influence of interest rates.When a positive impact was imposed on the exchange rate,the interest rate will show an upward trend after a downward fluctuation in the short term at last.Finally,there is a correlation between the cross factor of interest rate and exchange rate and the stock index variable,but it has a less significant effect.In view of the conclusions of the empirical results,this paper puts forward the following policy recommendations: On the one hand,for policy authorities,it is necessary to improve the marketization of interest rates,the internationalization of exchange rates,and deepen the marketization of financial markets continuously in order to promote the mechanism of action among the three variables.For another,for investors,they need to strengthen their knowledge reserves,cultivate a long-term investment vision,improve their mental health,pay more attention to the development of domestic and foreign economic investment,and try to avoid irrational investment behaviors. |
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