Research On The Dynamic Interrelation Between Stock Market And Foreign Exchange Market Of China

With thereformsof split-share structureandof mechanismforRMB exchange ratein2005,the opening-up of economical markets goes deeper and the internalinterrelation mechanism between stock market and exchange market has beenrecovering. The international financial crisis breakingout in2008has takentremendous impact to economical markets and economy of our country. DuringthePost Financial Crisis Era,European debt crisis broke frequently. U.S. governmentcarried out Quantitative easing monetary policy.And the global economy took adownturn. With this external economic environment, searching the interrelationcharacteristics or the transmission mechanism betweenstock market and exchangemarketwill be of great importance and significance forthe financial regulationdepartments effectively improve the efficiency of policy-making and guard againstthefinancial market risks.Basedonlearningrelated researchesfrom homeandabroad, this article studies thedynamic relationship and volatility spillover effects between stock price index andexchange rate and gives us the explanation of the cause from the perspective offrequencydomain and time domain. The major empirical study contents are as follows：The first section, based on the frequencydomain theory, this paper has chosen thevariables,including the dateRMB exchange rate against the U.S dollar,RMB exchangerate against the euro and the CSI300Index as sample. Moreover,it has chosen thetime which is fromthereformsof mechanismforRMB exchange rate in2005to April in2013. First, extract the growth component and the cyclical component of each datesthrough the Hodrick-Prescot filter method; Second, for the growth component,calculate the gray correlation degree to know that the relationship of RMB exchangerate against the euro and the CSI300Index is becoming more closer; Third, for thecyclical component, extract instrinsic mode function of each sample through Empirical Mode Decomposition.Then calculate periodicity ofIMFs by the Fast Fourier Transform method. The research finds that the mid cycleand the short term cycle of CSI300Index is closer to RMB exchange rate against theeuro and the internal interrelation between them was heightened. Therefore, it’spersuasive and credible to choose these couple of dates as sample in the secondsection.The second section,based on the time series theory, this article chooses stockprices index and RMB exchange rate against the euro after the reform of exchangesystem in July2005China as search sample. First, uses wavelet-based denoisingmethod based on wavelet analysis theory to wipe off the noiseinformationfromoriginalsignal; then divides the sample into two stages by theinternational financial crisis, empirically investigate the dynamic relationship andvolatility spillover effects between stock price index and exchange rate throughVAR-MVGARCH-BEKK model. The results manifest that compared with thefinancial crisis not happened the dynamic relationship became closer, the interactiveinfluence became intensive and inner transmission mechanism between our financialmarket and capital market has changed.