Research On The Correlation Between Exchange Rate And Stock Price

Since the year 2005, our country carries out in succession equity division and exchange rate regime reform, the market reform process of foreign exchange market and stock market has speeded up continuously, exchange rate and share price also uptrend together. Domestic currency appreciation triggers domestic market rally becomes main viewpoint gradually. However, since Global Financial Crisis caused by Subprime Lending Crisis in the August,2007 erupted, RMB is still rising and stock market begins to fall rapidly after having rallied for two months. This is not conformed to the viewpoint that domestic currency appreciation triggering domestic market rally. Thus, the job that lucubrating the relevance between foreign exchange market and stock market in our country has important theory value and reality meaning.In this paper, firstly, from the basic theory, we do up with the decision theory of exchange rate and share price and the alteration relation between them, based on this, expend to analyze the Mundell-Fleming Model. Secondly, discuss the intertrasmit mechanism between exchange rate and share price. Thirdly, establish VAR-GARCH Econometrics model based on time series to make empirical analysis on the relation between Shanghai composite index and nominal exchange rate of RMB&USD, the selected data is day data range from 25/07/2005 to 31/08/2009. The disposal route is Unit Root Test—Granger Causality Test—VAR-GARCH Model Volatility Spillover Effect Test--Conditional Correlation Coefficient Test. Empirical analysis suggests that there is one-way granger causality relation between exchange rate and share price and two-way price spillover effect and volatility spillover effect between them. Time-varying character from conditional correlation coefficient suggests that the linkage effect between the two markets is inconspicuous. At last, this paper combines...