The Influence Of Exchange Rate Changes On Chinese Stock Market Research

Exchange rate has a very important role in macroeconomic. It is the ties of a country to connect the internal and external economic. Exchange rate not only affects the macro level of foreign trade, international capital flows, price level, but also affects the performance of the company in the microscopic field of vision. The stock price is a comprehensive reflection of the macroeconomic and company performance, of course the stock price has a link to exchange rate. In July2005, China began to implement the exchange rate system reform, the fixed exchange rate regime in China started to change into a managed floating exchange rate regime. This shift has an important impact on the Chinese economy and the domestic stock market. So, a comprehensive analysis of the way how the exchange rate changes affects the China’s stock market and the size of the effects has great significance to maintain the stability of China’s capital market.This paper uses a combination of theoretical analysis and empirical research methods. On the theory part, this paper first introduces the basic theory of exchange rate determination, then introduces the general transmission mechanism of exchange rate fluctuations on the stock market, and discusses in detail the actual situation of the transmission mechanism in China market. On the empirical research part, the majority model of domestic literature in the study of the impact of exchange rate fluctuations on the stock market is single-factor model. That means the model only considered the impact of exchange rate fluctuations on the stock market, ignoring the other variables which have important impacts on the stock market. In this paper, on the basis of the analysis of the main factors which affect the stock market, I analyzed the impact of exchange rate changes on the stock market. In the model, I added the GDP growth rate, the growth rate of broad money supply (M2) and other control variables, the results have more reference value. On the impact of exchange rate changes on various industries, domestic scholars conducted a qualitative research, there is little empirical literature. This paper used empirical methods to test the effects of exchange rate fluctuations on the asset-oriented industries (real estate industry), the external debt-oriented industries (air transport industry),raw materials import-dependent industries (paper industry, steel industry), the product export-dependent industries (textile and garment industry). The results showed that the main industries which benefit from appreciation of the RMB are the real estate industry, air transport industry and paper industry, RMB appreciation has a negative impact on the textile and garment industry, the steel industry were not affected. On the basis of the empirical results, this paper analyzes the theoretical reasons of the above industries affected by the impact of RMB appreciation from the perspective of industry research angel, the results have a certain reference value.After empirical analysis, I compared the background and process of appreciation of the yen on the end of the1980s with which RMB in China after exchange rate reform, and summed up the main similarities and differences. The last part of this paper discusses the outlook of exchange rate movements impact on the stock market and policy recommendations. Since the exchange rate reform, the RMB has experienced a unilateral appreciation process, however, with the gradual release of the pressure of RMB appreciation, the probability of RMB to continue significant appreciation is small. The central bank announced on April15,2012that the scope of the RMB against the U.S. dollar raised from five thousandths to one percent, Which means that the RMB exchange rate is more likely to increase two-way floating range, rather than unilateral appreciation process. With the appreciation of RMB is expected to reduce, China will face the pressure of capital outflow in the future, how to reduce the impact of capital outflows to China’s capital market, this paper gives policy recommendations in the last part.