The Research On The Impact Of RMB Appreciation On Mainland Stock Market

In recent years,with rapid growth of economy, our foreign exchanges reserves and favorable balance of trade has increased year by year, so fixed pegging dollar regime can not meet the demand of economic development, the pressure of RMB appreciation becomes bigger and bigger. On July 21, 2005, the People's Bank of China announced that from July 21, China began to institute a regulated, managed floating exchange rate regime based on market supply and demand and in reference to a basket of currencies which means the end of the ten years long fixed foreign exchange rate regime. This transition has a great impact on our domestic economy including mainland stock market. Therefore, the comprehensive analysis on the impact of exchange rate on the stock market is of great importance. This article attempts to examine the impact by means of theoretical analysis and positive research. The research employs the regular cointegration test and Granger's causality test on daily data which was made up of two and a half years. Results show the RMB currency and the stock market index will come to a balance in a long run, but the causality effect is not significant even under the significant level of 10%. On the basis of analysis above, the article thoroughly analyze the interior and exterior reasons of the results, and raise some suggestions in order to keep the stock market healthy and prosperous.This article is made up to five parts. The first part is introduction, which introduce the objective, research method and the former survey results. Then, the first chapter mainly introduces the theory related and the channels of exchange rate to stock price, and also the theory of RMB appreciation. The second chapter is the main part of the thesis. An econometrical analysis is made to find out the relationship of exchange rate and stock market index as a whole, and the article analyzes the interior and exterior reasons of test results in order to make some in-depth research. The third chapter concentrates on the comparison with Japan. The fourth chapter lists some proposals to rationally develop stock market and exchange rate reform on the basis of the analysis above.