Analysis On The Asymmetrical Effect Of The RMB Exchange Rate Fluctuation On China's Stock Market

China's financial market is in a critical period of continuous deepening of reforms and an increasingly open capital account.With the continuous improvement of the RMB exchange rate formation mechanism,the foreign exchange market will have a more significant impact on the Shanghai and Shenzhen stock markets.Since the “new exchange reform”,the exchange rate fluctuation of the RMB has shown a two-way fluctuation trend,and the Shanghai and Shenzhen stock markets have continued to fluctuate at a low level.Then does the two-way fluctuation of the RMB have an asymmetric effect on the transmission of stock prices and yields? Therefore,this paper conducts empirical analysis on the issue of the asymmetric effect of RMB exchange rate fluctuations on China's stock market,and provides an empirical basis for preventing the linkage risks between the two,and at the same time,it is necessary for the authorities to formulate relevant policies and investors to make reasonable investment decisions.First,this paper constructs a NARDL model of the RMB exchange rate and Shanghai Composite Index and Shenzhen component index log.This paper uses the difference method to decompose the fluctuation of RMB exchange rate to positive and negative effect and calculate different degrees of influence of positive and negative cumulative increments on stock indexes and correlation coefficient.At the same time,using the Wald test to analyze long-term and short-term asymmetries,respectively,the results show that RMB exchange rate fluctuations affects our stock markets both in the short and long term with asymmetric effects.The analysis of cumulative dynamic multiplier effects shows that the impact of exchange rate fluctuations on the Shanghai and Shenzhen stock markets is a non-linear adjustment and is persistent.However,in the short term,the fluctuation of the RMB exchange rate causes the stock index to rise or fall is not clear;in the long term,the impact of RMB appreciation on the stock price is greater than the impact of RMB devaluation on the stock price.Then,The time-varying MS-Copula model,which is a combination of the time-varying MS model and the Copula model,divides the financial market into different regions based on the volatility state,and calculates the RMB exchange rate returns under different regional systems with high and low fluctuations and the dynamic correlation coefficient of the index's logarithmic rate of return.It is concluded that the Shanghai and Shenzhen stock index yields have a negative correlation with the exchange rate fluctuations of RMB,but this correlation is quite different in different periods,and can be obtained from real-time changes in dynamic coefficients.In addition,since the “New Exchange Reform”,the correlation between the both has become stable.The effect of fluctuations in RMB exchange rates on the logarithmic returns of the Shanghai and Shenzhen stock markets is non-linear and asymmetric.Finally,with the capital market increasingly open,the impact of RMB exchange rate shock on Shanghai and Shenzhen stock market has increased gradually.The current global economic recovery and uncertainties coexist.The reducing process of balance sheet of the federal and the expected increase in the US dollar rate are even more intense.The RMB is showing a depreciating macroeconomic background.Under the financial situation,to stabilize the exchange rate market and the stock market,we hope that the Central Bank and the SAFE should pay attention to increasing the level of RMB internationalization.The Central Bank should prevent external shocks in the exchange rate market in the short term,establish asymmetric anti-cyclical policy measures to stabilize market fluctuations,and stabilize the expectations of markets and investors.At the same time,investors should pay attention to the trend of the RMB exchange rate,especially when the RMB depreciates,the stock should be handled with caution to avoid risks.