Study On The Dynamic Relationship Between RMB Exchange Rate And The Shanghai And Shenzhen Stock Index

As China's economy continues to advance market-oriented reforms,the inherent linkage mechanism between stock and foreign exchange markets has been continuously improved,then strengthen the association.However,due to the impact of the international financial crisis in 2008,China's economy has faced severe challenges,China's stock market was also downturn in 2008.After the financial crisis,the global market environment has improved and Chinese economy gradually recovered from the blow,the government re-committed to restore the vitality of the market.Currently,the overall trend of the appreciating RMB exchange rate is maintain,two-way volatility elasticity gradually enhanced to improve the exchange rate sensitivity of the market response,meanwhile,the opening-up capital market also makes the relationship between the RMB exchange and stock market prices more closely.By comparing the direction,size and mechanism of links between the exchange rate and stock prices before and after the subprime crisis,we can understand the changeable stock and foreign exchange markets more profoundly,helping to build more open and sensitive market information conduction mechanism to prevent financial risks in theory and practice perspective.By combination of inductive and deductive methods,the first to third chapter qualitatively analyze the theory of empirical measurement methods as well as the transmission mechanism between stock prices and exchange rates.Then Chapter IV uses empirical BEKK-GARCH model,the co-integration test,Granger test,mean equation and WALD test to analyze spillover effects of the exchange rate and the average share price.According to the conclusions of empirical model,we explore the strength and direction of the linkage between the stock index and exchange rate in different stages,verify the reform result of exchange market and stock market policy implementation.Finally,according to the results of the research,we put forward policy recommendations for the stable development of the stock and currency market of our country.This paper analyses concluded that,before the crisis,there is a weak relationship between the exchange rate and the balance index,after the crisis,the equilibrium relationship gradually disappear owing to the lack of effectiveness of Chinese financial markets and the factors that impede free transmit of information,unidirectional mean spillover effects only exist between foreign exchange market and the stock market and the negative correlation between the exchange rate to the pre-crisis stock index change to positive.The theoretical relationship between the two is also gradually transformed from flow-oriented model into stock-oriented;volatility spillovers between the RMB exchange rate and stock index has significantly weakened after the financial crisis,particularly the spillover effects from exchange rate to stock index almost disappeared,which indicating that the risk management level is gradually increased with the progress of financial system.