Research On The Relevance Relationship Between Exchange Rate And Stock Price

Exchange rate and stock price are the primary prices in the financial market.One is external,the other is internal.These two variables influence and constraint each other mutually.Based on these facts,the relevance relationship between exchange rate and stock price has become the attention of the academic communities and investment communities.During different time period and different countries,the causality and correlativity in the relevance display disparately.This thesis focuses on the relevance between exchange rate and stock price with time period after the reformation of the exchange rate,which is from Jul.2005 to Dec.2008.What is the extent of the relevance? Does the exchange rate affect the stock price,or the stock price impact the exchange rate?The interesting point is that although it last for only three years,the sample time period provide two disparate economic background,which are the rapid economic expansion and rapid economic recession.Based on this,we extend the research range that are the relevance relationship between exchange rate and stock price different in expansion phase and recession phase,this is a creative point when comparing to the publications of China on similar topic.After analyzing the foreign and domestic literatures on the relevance relationship between exchange rate and stock price,this thesis transfers disciplines perspective and switches variable perspective in order to illustrate the reasons and manifestations of the relevance relationship.The thesis applies the opinions from western economics. international economics and behavior finance to explain the causation of the relevance relationship between exchange rate and stock price.It compares the performance of the exchange rate and stock price based on the different exchange rate system and stock market system.Then the thesis uses the so-called three-step fraction "Exploration-Expiration-Application" to promote the research on this topic.After receiving the general form of the relevance relationship between exchange rate and stock price,the thesis adopts an empirical research on the relevance relationship. Based on the sample partition and data processing,it carries out unit root test, Co-integration test and Granger Causality test orderly to conclude that the exchange rate and stock prices present negative correlation and one-way causal relationship from exchange rate to stock price during economic rapid expansion period,however, the exchange rate and stock price do not provide variable equilibrium assurance of the relevance relationship and casual relationship.After the detail explanation to the conclusion,in the application procedure,the thesis illustrates the trend investment in the Chinese stock market and analysis the profitable, bad and neutral industry investment strategy triggered by one-way impact of the exchange rate on stock price,with the corroboration of empirical data.Finally,in the policy recommendations,after combining the current financial crisis with the latest spirit from National People's Congress(NPC) and Chinese People's Political Consultative Conference(CPPCC),the thesis provides three advices to rationalize the interaction mechanisms between exchange rate and stock prices,which are the improvement of capital market structure,the transformation to flexible fiscal and monetary policy,and the innovation of effective market regulation.