Empirical Studies On The Correlation Between China's Stock Market And Exchange Rate Market

Along with the gradual opening of international capital markets,the integration level of financial markets is deeping,especially the correlation between stock market and exchange rate market have been continously strengthing.Since the second half of 2005,China began to implement the reform of RMB exchange rate system and the equity split reform,which made the fixed RMB exchange rate regime pegging to dollar gradually transformed into pegging to a basket of currencies in managed floating regime, and stock market was achieved as full tradable,the ahead-time reform had tremendous impact on the operation of stock market and exchange rate market.It is in this context that study the correlation between stock market and exchange rate market has important theoretical value and practical significance,it's very useful for the government to formulating monetary policy,exchange rate policy, capital market regulation, and help us to realize how capital markets work,and help investors manage risk.This paper first analyzes the background and significance of studying the correlation between stock market and exchange rate market, then reviews some theories and empirical evidence studied by domestic and foreign scholars.Secondly,the author elaborats the econometric research methods,which includ unit root test, cointegration theory and test, Granger causality test, vector error correction model, impulse response functions, variance decomposition and dynamic conditional correlation-general autoregressive conditional heteroskedasticity model.Finally,the author studies the stock market and exchanger rate market data, which is collected since the exchange rate regime reform,in an empirical way.At the end of the paper,combined with related theories and the reality of economic operation,the author analyzes and imterpretes the empirical results,and give some policy recommendations and future research directions.The main conclusions of this paper are: since the exchange rate regime reform, stock market and exchange rate market has a long-term cointegration relationship, and they are negatively correlated; no matter in the long-term or short-term, stock market Granger causes exchange rate market, only in the short-term exchange rate Granger causes stock market, the impulse response function and variance decomposition further demonstrates the relationship between the two markets; DCC ? GARCHmodel showes that there exist significant dynamic correlationship between the two markets, and varies over time, there are significant volatility spillover effects in the two markets.