Rmb Exchange Rate And Stock Price Relations Empirical Research

Since july 21, 2005, the reform of the RMB exchange rate, the RMB exchange rate continued to rise, and the RMB exchange rate has appreciated 8% by the end of 2007. At the same time, the Shanghai composite index has risen to 6124 points on October 16, 2007 from 998 points on june 6, 2005. Stock prices continued to rise while the appreciation of the RMB exchange rate accelerated. whether there is a link between the RMB exchange rate and 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 exsiting 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 exsits between the RMB exchange rate and stock prices; second, whether there is a causal relationship between the RMB exchange rate and stock prices;Third, if there is a long-term equilibrium relationship and the causal relation, how to guard against the rapid spread of a single financial market crisis likely caused by the close ties between all of the financial markets. if there is not a long-term equilibrium relationship and the causal relation, how to eliminate the factors that obstruct the conduction between the RMB exchange rate and stock prices. For the above problems, this paper studies to draw such conclusions as follows: First, a weak long-term equilibrium relationship exsits between the RMB against US dollar exchange rate and stock prices , and a one-way causal relationship from the RMB against US dollar exchange rate to stock prices exsits between the RMB against US dollar exchange rate and stock prices. a long-term equilibrium relationship and a causal relationship don' t exsit between the RMB againstother currencies exchange rate and stock prices;Second, as the system defects exsiting in China' s foreign exchange market and stock market block the freely conduction between the RMB exchange rate and stock prices, this paper put forward the corresponding policy suggestions to eliminate the factors that obstruct the conduction between the RMB exchange rate and stock prices.