A Study On The Interaction Effects Between RMB Exchange Rate And Industry Stock Index

With the RMB exchange rate reform forward, including the introduction ofRQFII mechanism and the abolition of compulsory settlement system, the RMBappreciation is expected to continue to strengthen, and gradually the autonomy ofdomestic institutions and individuals holding and using foreign currency is increasing.The impact of the RMB exchange rate on the national economy and development ofthe industry is getting bigger. At the same time, volatility spillovers and linkagemechanism between the exchange rate and stock price have been academic andfinancial concerning hotspots. The study, which probes that the development of thereal economy and the stock price volatility of different industry sectors stock marketprice fluctuations economic development of different entities and industries willaffect the exchange rate trend, is a relatively new trend research direction. Researchon the interaction effects of RMB exchange rate and industry stock index, could helplisted companies and enterprises under different industry background learn aboutexchange rate movements how to affect their share price performance and marketvalue. Simultaneously, it can improve enterprises’ the capability of foreign exchangerisk management and perfect China’s financial market reforms.In this paper, it combines wavelet analysis with multivariate GARCH-BEKKmodel, to measure fluctuations relevance and interaction effects between RMBexchange rate and industry stock index, not only taking the effect with a two-waytransfer of the two sides into account, and using wavelet multi-resolutiondecomposition characteristic and method to characterize the interaction effects ondifferent trading cycle rates and various industry index series. The studycomprehensively investigates the strength, direction and periodic of the linkagebetween RMB exchange rate and industry stock index.The empirical results show that RMB exchange rate has interaction effects ofvarying degrees and periodicity with every stock industry sector. On the whole,exchange rate spillover effects on the industry sector is stronger than the industrysector on the exchange rate itself, this conduction effect is more remarkable in a shorttransaction cycle; because of the different entities based on the nature of theeconomy, the impact of exchange rate changes on different industries and companies;with the expanding of the stock industry sectors’ market-value and strengthening of the role of prices characterization in recent years, most industry sectors are graduallyaffecting exchange rate’s price movements and fluctuations with significant meanspillover effects and volatility spillovers.