Research On The Relevance Between The Exchange Rate And Stock Price In China

Because of the continuous development of economic globalization, the relationship between the different financial markets around the world continues to deepen. The deepening of contact of each different market is also increasing. As a result, each price movement in different financial markets is influenced not only by the changes in their own influence factors, but also by other financial market price fluctuations. As two important parts in financial market, the foreign exchange market and the stock market has always been the object of many scholars. After the split share structure reform and the RMB exchange reform in China, the correlation between these two parts has received more attention.The paper is divided into five parts. The first part analyzes China’s current economic background, by summarizing the review of the literature, then introduce the purpose and significance of this paper. The second part summarizes the theoretical basis between the fluctuations in exchange rates and stock prices, including two mature theories:Flow-oriented model and stock-oriented model. And then from the different angles of interest rates, money supply, and psychological expectations, the paper analyzes the transmission mechanism between the exchange rate and stock prices. Compared the current economic situation in China and the situation in Japan among1980-1990, the third part summarizes the similarities and differences in two periods. Using GARCH model and TARCH model, the fourth part analyzes the foreign exchange and stock markets in China and Japan. At the same time, using the financial crisis as a dividing line, the paper is divided into three sections to analyze specific situation. According to the results of empirical research, which is only in the post-financial crisis era there is a two-way volatility spillover effects between China’s stock market and foreign exchange market index return, the fifth part make relevant policy recommendations to promote sustainable economic future development in China.