Empirical Analyses On The RMB Exchange Rate And Stock Price

From the reform of the RMB exchange rate to the end of October,2007,the Shanghai composite index also kept going up.However,from October,2007 to the end of 2008, the stock market experienced the most terrible winter.The RMB exchange rate has kept increasing since the reform of the RMB exchange rate.However,since August,2008, there were inappreciable fluctuations in the RMB exchange rate.The trend lasted for about four months.Behind the complicated relation between the RMB exchange rate and stock prices,is there a real link? Did the dramatic appreciation and temporal depreciation have some impact on the increase and drop of the stock prices?From the basic theory,this paper makes a comprehensive analysis of the mutual influence and the channel of conduction between the exchange rate and stock prices; then with China's reality,this paper analyzes the relation existing between the RMB exchange rate and stock prices;selecting the RMB against the principal currency exchange rate,A share and B share,this paper makes an empirical analysis;at the end of the article,this paper put forward the corresponding policy suggestions.Specifically, this paper concerns the following aspects:First,if a long-term equilibrium relationship exists between the RMB exchange rate and stock prices;second,whether there is a casual relationship between the RMB exchange rate and stock prices;third,if there is a long-term equilibrium relationship and the causal relation,is it the same with the conclusions of other scholars' research? If there are differences,how to explain?For the above problems,this paper studies to draw such conclusions as follows:First,a long-term equilibrium relationship exists between the RMB against USD exchange rate and stock prices,and also between the RMB against HKD exchange rate and stock prices;a two-way causal relationship exists between the RMB against USD exchange rate and A share stock prices,and also between the RMB against HKD exchange rate and A share stock prices;a one-way causal relationship exists from B share stock prices to the RMB against USD exchange rate,and also from B share stock prices to the RMB against HKD exchange rate;a long-term equilibrium relationship and a causal relationship don't exist between the RMB against other currencies exchange rate and stock prices.Second,since the differences of the selected time periods,the conclusions are different between this paper and other scholars' research.The empirical analyses of this paper show that there are stronger relationship between our foreign exchange market and stock market.We should continue the reforms of the two markets and conduction factors between them,in order to make the conduction channel more clear and unrestricted.