Analysis On The Effective Impact Of RMB Exchange Rate Change On The Stock Price After RMB Exchange Rate Formation Mechanism Reform

After the announcement published on reform of the RMB exchange rate formationmechanism since2005,RMB exchange rate against the dolla has been shown a trend ofrising.At the end of April2008, intermediate exchange rate has risen from8.28to the6.99.The cumulative appreciation is to15.6%.At the same time, the stock marketresponded quickly.From July2005,the CSI300index has been rising.On October17,2007, the highest reached5824.12.Due to the impact of financial crisis, since the secondhalf of2008,RMB exchange rate has stopped appreciation and the stock market also hasbeen gradually transformed from the previous bull market into a bear market.InNovember2008,the CSI300index was down to its lowest1817.61, falling by68.8%.From the above performance we can infer that exchange rate changes to stockprice does exist a certain degree of influence.With the further deepening of the reformof exchange rate,the floating range of exchange rate also expand orderly.Since2014,the RMB exchange rate against the dollar is no longer the continuation of past years ofunilateral appreciation trend,and less than three months accumulated depreciation is to2.79%.The stock price after the crisis has experienced the process from a sharp drop togradual adjustment.So combining with the new changes of the two markets, the researchinto the effective influence on Chinese stock prices from RMB exchange rate changes isvery important to control exchange rate risk more effectively and achieve the financialand economic stability in the process of RMB exchange rate formation mechanismreform and the internationalization of the stock market.This paper defines the research problem quantitatively and qualitatively mainly byusing the theoretical and empirical analysis methods, according to the logical steps oftheory elaboration, present situation analysis, positive analysis and policy suggestionsbased on the pathway of the effective impact of RMB exchange rate change on the stockprice after the reform of RMB exchange rate.Theoretical part mainly expounds theclassical theory model and five different transmission mechanisms of the exchange rateimpacting on the stork price. In realistic analysis,mainly combining with China’s presentsituation of foreign exchange market, interest rate market and stock market,theexchange rate and stock price performance under five different transmission mechanismis described in experiential terms.In the empirical part,by using the monthly data afterthe revaluation and following the series stationarity test, cointegration test, Granger causality test, impulse response and variance decomposition analysis steps, fivedifferent transmission mechanism is analyzed respectively and the empirical results aresummarized.Firstly,Exchange rate changes lead to stock price fluctuation by influencinga variety of intermediary variable.These variables are mainly interest rate, money supply,import and export trade, international capital flows and the psychological expectations,etc.Through cointegration test they have long-term stable equilibriumrelationship.Secondly,due to different pathways,there are several differences ininfluence degree and direction on stock price from exchange rate.In the short term,under the transmission mechanism of interest rates and expectations as intermediaryRMB exchange rate has no marked impact on share prices. Under the transmissionmechanism of money supply as intermediary RMB exchange rate has positive influenceon stock price.Under the transmission mechanism of the import and export trade asintermediary RMB exchange rate have both negative and positive impact on stockprice.In the transmission mechanism of international capital flows as intermediary, theRMB exchange rate impact on stork price is negative.Thirdly,through Grangercausality test,the transmission mechanism of interest rates,import and export trade andthe expectations in our country is not open.In other words, there is no one-way causalrelationship in the RMB exchange rate through the above three ways on shareprices.Finally,through the impulse response and variance decomposition, a positiveimpact to the exchange rate by the both ways of money supply and international capitalflows will ultimately lead share price to decline after the rising trend of fluctuations andhave long-term stability of the positive influence on share price.But,exchange ratechanges’ contribution on share prices is smaller.Finally in order to better cope with thecomplex impact on the stock price from RMB exchange rate and effectively controlexchange rate risk in the process of the internationalization of stock market in thefuture, it puts forward some policy and suggestions.The innovation of this article is mainly manifested in the following two aspects:Thefirst, time span of data is from July2005to July2014including the new situation ofexchange rate changes this year.So the study is more comprehensive than the previousand the result has more practical significance.The second,empiricallyanalyzing impact on stock price from exchange rate under the different transmissionmechanism respectively can get the impact result under different transmissionmechanism and is more specific.