Analysis On The Relationship Between RMB Exchange Rate And China Stock Price

Stock price index reflects the overall level of a stock market; it is a barometer of a country's economic situation. Changes of the exchange rates also have a huge impact on a country's domestic economy. From the perspective of asset allocation, foreign exchange assets and the stock assets have a certain alternative, so the exchange rate and stock prices have a closer link. Since the proposed of Stock-oriented model and Flow-oriented model, different scholars use different methods and research data have discussed the relationship between the foreign exchange market and the stock market, but the results are divergent. Since China's exchange rate formation mechanism reform, it showed more flexibility, which created the conditions for our study. Then, after the Split share structure reform, our market-oriented level is also rising; it makes our study more meaningful.In this paper, first I give a related literature review of domestic and foreign theoretical studies, then I analyze the transmission between the exchange rate and the stock prices; Secondly, I use the data from 2007 to 2009, through the unit root test, co integration test, Granger causality test, impulse response, variance decomposition and other quantitative analysis methods to study the intrinsic relationship between exchange rate and stock prices. From the empirical research of the correlation between the exchange rate and Shanghai and Shenzhen 300 Index, I concluded that RMB appreciation promote the price of stock market. Based on the study of the plates and the exchange rates, I found that the changes of exchange rates will lead to different changes in different Index plates. Finally, according to the above conclusion, I will give some policy recommendations.