The Relationship Between Exchange Rate Of RMB And China's A Stock Price

Exchange rate is the relative price of one country's currency to another country's currency; it reflects the purchasing power of one country to another, while the price of the stock market is the signal of one country economy. Exchange rates and stock prices represent the foreign exchange market and capital market respectively, and both are very important indicator of a country's economy strength. So this paper studies the relationship between exchange rate and stock price systematically.Because the relationship between exchange rate and stock price are very complex, so this paper is to consider how the exchange rate's fluctuations affect on the stock price only. Firstly, this paper analysis various pathways of the impacts from exchange rate to stock price, and use portfolio approach creatively. The theoretical analysis show that exchange rate fluctuations and stock price are positive related in the shot term, while negative related in the long-term. Then in the empirical side, take the daily data of central price of RMB against the U.S. dollar and the Shanghai Composite Index form July 21st 2005 to December 31st 2009, the co-integration model and the vector error correction model, analysis the relationship from long-term and short-term respectively. The empirical results show the same as the theoretical analysis. Finally, analyzes the actual situation in China and put forward some policy recommendations.