On The Co-integration Between RMB Exchange Rates And The Prices Of Chinese Stock Markets

Along with the growing opening degree of the global economy and financial system,the integrating process of international financing markets is deepening,and the co-integration of the price of stock market and exchange rate is stronger than before——the change in exchange rate can influence the stock price or vice versa. After the reformation of RMB exchange rate system in China, the RMB exchange rate's floating range is further widened. After the dividing of the equity, the shares in the different share holders are traded on the same condition in the short time. The two reforms significantly improve the connection between the stock market and the foreign exchange market in china. In this background, researching the relationship between the stock market and foreign exchange rate can produce synthetically influence in many aspects. Broad theoretical study and empirical study are carried out by economists.This paper first reviewed the relative foreign and domestic articles on this subject, and then had systematic carding and conclusion of the relative theories about the connection between exchange rate and stock price with the principles of the finance and international economics. Chapter three specially studies China's situation, using unit root test, Johansen co integration test, VEC model estimation and Granger causality test, comparing China NEER (NBCN) with 3 stock price indices in Shanghai and Hong Kong stock market, and trying to provide explanations to empirical researches. The following core conclusion and sub-conclusions can be drawn by the profound study on the relationship between exchange rate and stock price: (1) A long-time stably equilibrium doesn't exist between RMB exchange rate and stock price index before the reform.(2)After the reformation of RMB exchange rate system, the change of RMB exchange rate has both short-term and long-term positive effect in the stock price index in various stock markets, i.e. appreciation of RMB brings rise to stock price index, depreciation of RMB in turn brings fall to stock price index. The stock price index can't be granger causality in short-term, but it can be granger causality in long-term. On the basis of above analysis,the article lists some proposals for rational development of stock market and exchange rate and defending financial crisis. Finally, some advices for the reform of Chinese foreign exchange management, the building of Chinese share market and exchange market are given.