Research On The Effects Of RMB Exchange Rate Change On China's Stock Market Price

With the development of economic globalization and financial liberalization,the financial markets in various countries are connected and impacted with each other.A country,s financial market not only faces the impact of its own economic variables,but also bears the impact of the world's financial market.Foreign exchange market is the vital link between domestic and the world's market,and the change of its price will inevitably have a certain impact on the domestic economy.Historically,foreign exchange market and stock market in the same country fluctuated simultaneously for several times.Therefore,many countries pay close attention to the price interaction and risk transmission between exchange rate and domestic stock price.With the gradual deepening of the exchange rate regime reform and gradual liberalization of capital account,the linkage between stock price and exchange rate is bound to be closer.After the two exchange rate regime reforms in 2005 and 2015,the RMB exchange rate has gradually shown a two-way fluctuation trend and therefore its uncertainty increased.At the same time,the domestic financial market and the external market are linked more and more closely.Studying the impact of the RMB exchange rate on stock price in combination with specific industries is of great significance for stabilizing the financial market and preventing systemic and industrial risks.On the basis of summarizing the existing relevant theories and empirical studies,this paper analyses the impact mechanism of exchange rate on stock price.Exchange rate mainly influences stock price by interest rate,money supply,global trade,international capital flow and psychological expectation.This paper selects variable quantities such as Shanghai Composite Index,CITIC industry indices of power equipment and textile and garment industry,and the real effective exchange rate index of RMB and build VEC model so as to carry out empirical research on sample data such as stationarity test,cointegration test,impulse impact analysis and variance decomposition.The following conclusions can be drawn by theoretical and empirical analysis:Firstly,exchange rates can influence stock prices in the Iong run through a variety of media.There is a long-term and stable co-integration relationship between exchange rate and stock price,interest rate,money supply,foreign direct investment and international trade balance,and the direction of each variable's influence on the three stock price indices is the same.Secondly,in the short term,the impact of exchange rate and media variables on stock prices has industry differences.The three indices are negatively correlated with interest rate and positively correlated with money supply,but the three indices have inconsistent relations with exchange rate,foreign direct investment and international trade balance.Thirdly,the transmission of exchange rate changes to stock prices is still inadequate.In order to maintain the stable development of foreign exchange market and stock market,this paper puts forward five policy suggestions based on the influence mechanism of exchange rate on stock prices:(1)Deepening the reform of the foreign exchange market,such as improving the RMB exchange rate formation mechanism,expanding the numbers of participants and their autonomous rights in the foreign exchange market,and steadily and orderly promoting the convertibility of capital account.(2)Strengthening the construction of the stock market,including optimizing the stock price formation mechanism,establishing an open and multi-level capital market,and improving the management level of listed companies.(3)Promoting industrial structure adjustment and perfecting the structure of import and export.(4)Further promoting the market-oriented reform of interest rates.(5)Guiding investors,psychological expectations correctly.