Research On Theimpact Of RMB Exchange Rate On The Volatility Of China’s Stock Market

Because of the slowing global economic growth and the increasing financial market turbulence at home and abroad,the interaction between financial markets has attracted much attention.Under the condition of open economy,the interaction between exchange rate and stock price is increasingly intensified,especially the external shock will cause the fluctuation of domestic capital market through the conduction of foreign exchange markets.Therefore,the study of the linkage effect between exchange rate and stock price is very important,it can help us master the regular pattern of the two markets’ linkage,enable the relevant agencies and departments to strengthen management,and improve relevant policies to promote the positive effect of the currency market conduction,weaken the influence of adverse economic impact on the stock market,maintain the stability of financial markets.Thus,based on the previous studies,this paper selects the most representative exchange rate index:the central parity rate of RMB against us dollar,and the stock price index:the daily data of Shanghai composite index and the Shanghai and Shenzhen 300 index for further study.In general,this paper is mainly divided into three parts.The first part mainly studies whether the change of RMB exchange rate can cause the fluctuation of Chinese stock market.The second part is used to study whether the influence of RMB exchange rate fluctuations on China’s stock market volatility shows time-varying characteristics and the reasons for the occurrence of time-varying characteristics.On the basis of the first two parts,the third part makes an empirical study on the factors affecting the relationship between exchange rate fluctuations and stock market fluctuations.Specifically,in terms of variable selection,this paper selected the data since the exchange rate reform in 2005,that is,the daily degree data from July 21,2005 to December 31,201 8,as the original data.After the unit root test,it was found that the variable’s growth rate sequence had the same order of single integration.Therefore,the variable’s growth rate sequence is adopted as the research object in this paper to construct the binary VAR model.The descriptive statistical analysis,Cointegration test,and the Granger causality test are made before constructing this model,and Granger causality test shows that the change of exchange rate index is a granger cause of stock price index changes.Two VAR models were established and the impulse response analysis and variance decomposition analysis were also made,the results show that the exchange rates fluctuation can affect the stock price to some extent,there was no significant difference between the Shanghai composite index and the Shanghai and Shenzhen 300 index.To test whether the effects of the exchange rate on the stock market volatility have the time-varying characteristics,this article will sample interval according to the Wang Xiang(2018)and other people’ study to divide the sample interval into four periods:from July 21,2005 to April 24,2008,from 2008 on April 25 to August 6,from 2010,August 7 to 2014 on April 25,from April 26,2014 to December 31,2018,and then respectively build VAR mode and made variance decomposition analysis,the empirical results eventually show that the currency impact on share price can change.However,it does not show a trend of continuous strengthening or weakening.Instead,it shows a trend of different changes under the influence of different factors,such as the overall macro-economy,specific economic policies,the reform of RMB exchange rate formation mechanism and investors’ psychological expectations.This paper also makes a detailed analysis of the reasons for the appearance of time-varying characteristics.Finally,this paper selected the two measurable variables as the factors that can influence the strength of the relationship between the exchange rate and the stock price:China’s marketization index,the degree of opening to the outside world to do empirical research.The results show that the higher level of China’s opening,the higher of the China’s marketization index,the conduction effect of exchange rate on the stock market will be more clear,based on the above empirical results,this paper puts forward policy suggestions in the last chapter,including perfecting and improving the transmission channel of the foreign exchange market to the stock market,accelerating the marketization process,and standardizing the stock market.The innovation of this paper lies in 1.The selection of research object:most of the previous literature studies only used one kind of stock price index as the research object,and this paper took two most representative stock price indexes into consideration,and built the same model for both Shanghai composite index and Shanghai and Shenzhen 300 index for empirical research.2.The variable interval choice:this article selects the latest data,the longest time span,more exchange rate and stock market changes over the years can be taken into consideration.And in accordance with the Wang Xiang(201 8)’study of the mutation point,this paper divides the sample into four sub sample intervals,it is more beneficial to use the empirical research to confirm the time-varying characteristics.3.There’s no scholars having made detailed explanations to the time-varying characteristics based on what i have read,but this article not only draw very different conclusions,but also carry on and in-depth analysis of the reasons behind,and carries on the empirical analysis of relevant reasons.