Research On The Relationship Between Exchange Rate Of RMB Against The USD And Shanghai&Shenzhen300Index After RMB Exchange Rate Regime Reform In China

China began to implement the split share structure reform in Chinese stock market since May,2005,that meant our stock market would turn into full-circulation stage.In July of the same year,the RMB exchange rate regime reform launched in China,the elasticity of RMB exchange rate further enhanced.As is known to all,the stock market and foreign exchange market are an important part of our capital market. Stock price and exchange rate are important indicator to reflect the stock and foreign exchange market information and trend.Nowadays, with the reform of the two markets going deeper,we can’t help asking:whether is there some relationship between them or not?If so,how about the relationship?Positive correlation?Negative correlation?Being enhanced,or weakened? and so on.Many domestic and foreign scholars have done the research about the relationship between exchange rate and stock price,but the conclusions are not the same because of differences in time range of data,choice of variables,model specifications,research method and so on.Based on the existed literature,the paper analyses the relationship between the RMB exchange rate and stock price from the theory and the empirical.In the aspect of theory,the paper mainly introduces two classic theoretical models which study the relationship between the exchange rate and stock price,and the paper sums up and analyses five important intermediate variables which may be the channel of the conduction between exchange rate and stock price interest rate,import and export trade balance,money supply,international capital flow and psychological expectation.Thus,it clears up that the relationship between exchange rate and stock price is well-founded in the theoretical level.Follow on,in the aspect of empirical,the paper considers the significant role of the intermediate variables,collects the lastest daily data(exchange rate of RMB against the USD,Shanghai&Shenzhen300index and interest rate),uses correlation analysis,ADF test,JJ test,VEC,granger causality test,IRFA,VD,a series of ARCH model and bring in dummy variable to analyse how the financial crisis influence the relationship between exchange rate and stock price,and gets the following main conclusions in the end:Firstly,there is a long-term stable equilibrium relationship between exchange rate of RMB against the USD and China’s stock price,and in cointegration equation,the relationship expresses positive correlation in the long run,but in VEC model equation, the relationship expresses negative correlation in the short term.Secondly,granger causality test shows that a one-way causal relationship exists between exchange rate of RMB against the USD and China’s stock price,that is to say,China’s stock price is the granger cause of exchange rate of RMB against the USD,but not vice versa.Comparing with the flow-oriented models of exchange rate determination,the stock-oriented models of exchange rates can explain the causal relationship of the two variables better.Thirdly,high-level ARCH effect exists between exchange rate of RMB against the USD and China’s stock price and there is asymmetry of information shock between them.Fourthly,the American financial crisis has a significant influence on the relationship between exchange rate of RMB against the USD and China’s stock price.Finally,in policy recommendations part,combining with the theoretical analysis and empirical research,the paper gives related policy suggestions to strengthen the relationship between the foreign exchange market and stock market.