Empirical Research On The Impact Of RMB Exchange Rate Changes To Bank Shares Price

With China’s foreign exchange system reform deepening, the foreign exchange market framework has been formed, exchange rate changes impact on the national economy has become increasingly obvious, of all kinds of financial instruments in financial market prices also has a certain influence, investors are more and more attention to the change of exchange rate. The stock market as an integral part of capital market, has the effect such as financing, optimizing the allocation of resources, play an important role to the economic development. The stock price is the direct embodiment of a country’s level of economic development, the change of stock price can more intuitive reflect a country’s level of economic development and capital supply and demand, market conditions, industry prospect and the change of political situation. So studying the relation between the RMB exchange rate and stock price has realistic meaning to study, especially in the current economic situation, the RMB appreciation pressure increasing, the stock market fluctuate frequently, the study of exchange rate changes and the relationship between stock price changes, can cause more people to pay attention to the risks of foreign exchange and stock market, improve the risk prevention consciousness.Based on the theory of exchange rate and stock price theory, adopting normative analysis and empirical analysis method of combining the research of the relationship between exchange rate and bank stock price. First of all, using relevant theories and research results of scholars both at home and abroad to, the essay discusses the basic theory of exchange rate and stock prices; Then, through the international capital flow, international trade, interest rate, the company’s performance and expectations between exchange rate and stock price impact analysis process, by using the software of measurement Eviews6.0on RMB exchange rate parity, bank stock prices the daily data for empirical research of these variables. Through the unit root test, cointegration test, granger causality test, vector error correction model, impulse response analysis and variance decomposition analysis, verify the correlation of the RMB exchange rate and stock price accord with theoretical analysis, finally put forward the improvement Suggestions according to the results of the empirical research.The basic conclusions of this paper as follows:a. The exchange rate will affect stock price by international capital, international trade, interest rates, the company’s performance, psychological expectations. Under the background of the appreciation of the RMB, a long-term international capital flow on Chinese stock market and economic development has a positive role. b. In the long run, the relationship between exchange rates and the bank’s share price have stable cointegration, In the short term, they both has the bidirectional granger causality. In the long run, when the appreciation of the RMB, bank shares prices go up. For a long time, the appreciation of RMB will be beneficial to the development of our commercial bank business, and finally caused commercial Banks’share prices. Between different types of Banks, the RMB exchange rate show certain differences on the impact of stock price. Granger causality test results show that the exchange rate and bank shares is a two-way causal relationship, c. Lag of RMB nominal exchange rate with an inverse relationship between bank stock prices, the empirical results of Error correction model shows that in the short term, the appreciation of the RMB will help stock price to go up, on the other hand, the depreciation of bank shares prices help to fall. d. Exchange rate volatility have a certain impact on the bank shares prices. Impulse analysis and variance decomposition show that the exchange rate has a negative impact on the bank’s share price, it does not accord with long-term equilibrium condition, it can use the monetary policy in China to explain this phenomenon. When RMB appreciate, in order to prevent economic overheating and inflation, the central bank use tighten monetary policy in the reverse operation, higher interest rates, which can lead to share price drop. So that in the short term the currency has negative impact effect on the bank’s share price, the exchange rate for the contribution rate of share price movements showed a trend of increase after decreases contribution rate between1%and17%, and there is a long-term and stable effect.The Policy suggestions of this paper as follow:a. To promote the foreign exchange market infrastructure, improve the RMB exchange rate formation mechanism. Release normal to written demand, can eliminate long foreign exchange supply infinite expansion, the negative impact of unlimited increase in foreign exchange reserves, so as to reduce the pressure on the appreciation of the RMB. b. The government needs to establish capital flow to the dynamic monitoring and early warning mechanism, promote the healthy and orderly development of the domestic financial market. Under the background of the appreciation of the RMB, arbitrage and speculative capital arbitrage frequenting will cause the volatility of the securities market, establish a complete set of domestic securities market on the international capital amount of monitoring and early warning mechanism, effective regulation of the securities market is advantageous to the financial authorities, c. Guide the reasonable expectations. Psychological expectations factors effect on the foreign exchange market and the stock market is becoming more and more obvious, China should increase the degree of information disclosure for ordinary investors and corporate investors, cultivate a correct investment idea, make it to our country foreign exchange market and stock market have an accurate understanding and even the whole economy, and form a reasonable expectations, improve the correlation of the foreign exchange market and stock market, d. Investors should set up the correct investment concept, increase of exchange rate volatility risk awareness, reasonable to make investment decisions, e. Bank managers should be quickly identify the fluctuation of foreign exchange risk in a timely and effective manner, to establish the compliance risk prevention system, actively respond to exchange rate fluctuations on the impact of the bank’s share price. Commercial Banks must strengthen the exchange rate risk consciousness, to guard against exchange rate risks on the agenda. Our country commercial bank should pay attention to the current exchange rate risk, firmly establish a modern bank risk management consciousness, always adhere to the safety, liquidity and profitability of commercial Banks operating principles of organic unity.