Research On The Relationship Between RMB Exchange Rate Fluctuation And Stock Return Rate

Foreign exchange market and stock market are two important components of financial market.Both of them play important role of financing,allocating resources and adjusting economy.With the continuous advancement of the reform of non-tradable shares,China’s stock market has been developing and expanding,and is gradually moving towards market mature system.Under the new regime of RMB exchange rate,China’s foreign exchange market is gradually moving towards a market-oriented system.The relationship between foreign exchange market and stock market is getting closer and closer,and the research on the relationship between exchange rate fluctuation and stock yield is also getting deeper and deeper.Copula model has great advantages when used to analyze the correlation structure between variables.It can not only describe the nonlinear time-varying relationship between variables,but also describe the tail time-varying correlation relationship between variables.In this paper,static and time-varying Copula models are employed to study the relationship between exchange rate fluctuations and stock returns in China.This dissertation takes Shanghai Composite Index and Shenzhen Composite Index as China’s the representative of stock market,and according to the industry classification of CSRC,the stock market of our country is divided into 18 industry stock indexes.As for exchange rate indicators,the mid-rate of RMB/USD exchange rate is selected,and the indirect pricing method is adopted.Logarithmic rate of return of exchange rate is used to represent exchange rate fluctuation,and logarithmic rate of return of stock index closing price is used to represent stock rate of return.The data are based on the daily data of the last 10 years,i.e.January 1,2009 to December 31,2018.Firstly,the AR(P)-GARCH(1,1)-Skew-t model is used to estimate the marginal distribution of each yield sequence,then the marginal distribution is tested,and the tested marginal distribution is subjected to the parameter estimation of Copula model.Finally,the estimated parameters of Copula model are used to calculate the correlation coefficient between exchange rate fluctuation and the yield of each stock index and the correlation coefficient between the upper and lower tails.From this,the static and time-varying correlation and tail correlation between exchange rate fluctuation and stock index returns are obtained respectively.Through empirical analysis,this dissertation concludes that there is no correlation between the rate of return of the stock index in the education industry and the rate of return of the exchange rate,but there is a significant but weak positive correlation between the rate of return of the exchange rate and the rate of return of the stock index in the rest of the industry.That is,when the exchange rate of RMB against the US dollar rises and RMB appreciates,the rate of return of the stock in China increases,and the correlation coefficient between the two changes with time.In terms of tail correlation,there is a significant time-varying asymmetric tail correlation between exchange rate fluctuations and the returns of Shanghai Composite Index and Shenzhen Composite Index,which represent the overall stock market of our country.The specific manifestation is that the upper tail correlation is stronger than the lower tail correlation.By industry,there is a significant time-varying asymmetric tail relationship between stock index returns and exchange rate fluctuations in most industries,while there is no tail correlation between stock index returns and exchange rate fluctuations in a few industries.Finally,according to the research results of this article,relevant policy recommendations are proposed from the aspects of exchange rate and stock price.All in all,a conclusion is drawn that China should continue to make RMB exchange rate stable in order to realize the stability of capital markets.