Study On Driving Effect Of Rmb Exchange Rate On The Stock Price Of China

Foreign exchange and stock markets is an important part of the financial system, the linkage between the two has been the focus of attention. Since July21,2005, the reform of the exchange rate formation mechanism, floating range of the RMB exchange rate was constantly enlarged.The impact of the RMB exchange rate fluctuations on the stock market is also increasingly apparently. Before the outbreak of the U.S. sub-prime mortgage crisis, the Chinese stock market and currency both side by side up, the RMB appreciation on the stock market prices has played a catalytic role. After the spread of the sub-prime mortgage crisis burst and the European debt crisis, by the drag of the global economy and the external market, the Shanghai Composite Index price index began to fall, the stock market entered a downturn. Correspondingly, the RMB against the U.S. dollar exchange rate appreciation trend is slowing down, even reverse fluctuations. Overall, there is a certain degree of correlation between the exchange rate and the stock market.Because of the complexity of the relationship between exchange rates and stock market, so this paper is to consider how exchange rate’s fluctuations affect on stock price only. In this paper, considered the actual situation in China, we first understand the relationship between exchange rate and stock price theoretically using the IS-LM-BP model. Then we analysis various pathways of the impacts from exchange rate to stock price. On the empirical aspects, using the structural vector auto-regression model, we respectively examine the driving effect of exchange rate fluctuations on the stock markets of China and the United States. The results showed that RMB appreciation on the stock price has a significant negative effect. The explanatory power of exchange rate to the stock price volatility reaches9.48%; the international capital flows is more important to the Chinese stock market than that is to U.S. stock market; the U.S. economic growth play the most obvious role in promoting stock market while it is relatively weak impact on China’s stock market. Finally, consider China’s actual situation and the difference of the Sino-US exchange rate impact on the stock market, this paper put forward some policy and suggestions to promote the Chinese stock market and foreign exchange market healthy and orderly development.