Research On Effect Of Exchange Rate Fluctuations On Stock Price Index

The development of economic integration and financial liberalization promotes the link between currency and stock market,and since the collapse of the Bretton Woods System since the 1970 s,countries have to give up fixed exchange rate system,applies a system of floating exchange rates system,lifting restrictions on exchange rate,strengthen the fluctuations of the exchange rate.In open economy,exchange rate fluctuations caused the international capital flow,the flow of international capital impact on the stock market,stock market swings.triggering a financial crisis in the country,and due to the existence of contagious financial markets,causing regional or the global financial crisis.1980 s in Japan's financial crisis in the 1990 s Asian financial crisis and the beginning of the 21 st century,as evidenced by the US subprime mortgage crisis.As an important part of the financial markets,foreign exchange and stock markets,reflects national economic strength at the macro,and it is an important reference for economic agents when economic decisions at the micro.Because of this,it is necessary to further explore the impact of exchange rate fluctuations on the stock market.In this paper,the Asian financial crisis,the crisis of Japan's bubble economy and exchange rate system reform in our country as the history of the main line,the change of exchange rate from the crisis to the influence of the index,provokes deeper thoughts.Since the implement of the floating exchange rate system in international countries,many countries directly change the fixed exchange rate system into a free floating exchange rate system,or by a managed floating exchange rate regime transition to a freefloating exchange rate system,or from a free-floating to a managed float exchange rate system later.Based on our country's current exchange ratesystem,this article selects two countries,South Korea and Indonesia,because their exchange rate system reform is representative,through the theoretical analysis of the decision of the stock price,the transmission mechanism of exchange rate affects stock index,the empirical test under a managed floating exchange rate system of exchange rate fluctuations and free floating exchange rate system of exchange rate on the influence of the index,and test different transmission mechanism under different exchange rate system through the establishment of vector error correction model.Through theoretical analysis and empirical tests,we draw the following conclusions:exchange rate fluctuations impact on the stock index is less forceful under the free-floating exchange rate regime,the exchange rate Granger cause stock index.Under managed floating exchange rate system regime,the stock is Granger cause of exchange rates,and changes of the exchange rate system in South Korea and Indonesia alters the Granger causality between exchange rate and stock index,it is unidirectional Granger causality before the exchange rate regime changes,,but it is bidirectional Granger causality after the change of exchange rate regime.Both under free floating exchange rate system and a managed floating exchange rate system,there is a long-term co-integration relationship between exchange rates and stock price index.The paper draws the following conclusions through the analysis of the transmission mechanism,both under the floating exchange rate system and a managed floating exchange rate system,there is a longterm co-integration relationship among exchange rate,stock index,interest rate,import and export,the money supply,expectations and foreign exchange reserves.In the short term,in the free floating exchange rate system,exchange rate affect stock price index through interest rates,import and export,the money supply,foreign exchange reserve,influenced by itsown lag at the same time,but is not affected by stock volume change.In a managed floating exchange rate system,South Korea and Indonesia's stock price index affected by interest rates lag period,exchange rates lag period,money supply lag period,import and export lag period,expectations lag period,and influenced by the lag of the index itself at the same time.But in China,the exchange rate fluctuation in short term did not have an impact on stock through the interest rate,the index is only affected by exchange rate lag period and stock index lag period.