Research On The Relationship Between RMB Exchange Rate Fluctuations And Stocks Of A Share And H Share Listed Companies

RMB has been in a rising state since China implemented a new currency reformon July21,2005. At the same time, China stock markets have experienced some largechanges under complex effects. Accompanied by increasingly financial openness andreform in China, the link between the RMB exchange rate and stock prices is closer,which is widely concerned by academics as well as businessmen, and many theoreticaland empirical researches have been carried out. However, because of manyrestrictions, related researches in China is weak. Accordingly, it is of great theoreticaland practical significances to further research on the relationship between the RMBexchange rate and China stock markets.In this case, we firstly comprehensively analyze the influence mechanismbetween the exchange rate and the stock market from the angle of theory and analyzethe relationship between the RMB exchange rate and Chinese stock marketscombining with Chinese actual situations. Then we select daily data of RMB-USDnominal exchange rate, A share market index and H share market index between July22,2005and December31,2011, and use the data to make an empirical research onthe relationship between RMB exchange rate fluctuations and of Chinese stock marketprices. Finally, we select monthly data between July2005and December2011, anduse Jorion Model and Panel Data Model to evaluate the effect that RMB exchange ratefluctuations in the A share and H share stock returns. Moreover, we turn to the10industries in the two markets as well as A+H cross-listed companies to estimateconnections between their stock returns and RMB exchange rate fluctuations.The results show that RMB exchange rate is positively correlated with both Ashare and H share market indexes, which also means that the rise of the two indexesaccompanies with appreciation of the RMB. However, stock returns is negativelyaffected by RMB appreciation from both the perspective of the overall market andsingle industry, which means the appreciation of the RMB will bring down stockreturns. Besides, as to the A+H listed companies, the return of A share companies ismore likely to be impacted by the RMB exchange rate than the H share. On the whole,the A share stock returns is harder hit by RMB appreciation than H share. Accordingto the results, we make several policy recommendations with special focus and aims.