Research On The Interaction Between Exchange Rate Expectation And Stock Price

With the deepening of China's financial liberalization,interest rate and exchange rate market reform is continuously promoted,and the frequency of capital flows significantly improves.At the same time,the relationship between foreign exchange market and capital market is becoming closer.This thesis aims at analyzing the dynamic relationship and interaction between exchange rate expectation and stock price by incorporating factors of interest rates and short-term international capital flows into the framework.The theoretical model is established to examine the dynamic relationship between stock price and exchange rate expectation.The influence of expected factors,interest rate parity theory,investor demand of stock market and foreign exchange market are well reflected in theoretical framework.Then it utilizes smooth transition autoregressive models to empirically investigate the nonlinear relationship between exchange rate expectation and stock price,while considering the effect of Sino-US interest rate spread and the short-term international capital flows.The findings are as follows:the influence of exchange rate expectation,interest rate spread and short-term international capital flows on the stock price has significant regime heterogeneity.When the exchange rate expectation is the switching variable,the effect of exchange rate expectation on stock price in different regime is different,especially when the RMB is expected to be of lower value.When the value of the RMB is expected to be higher,the interest rate spread(foreign interest rates-domestic interest rates)will lead to the fall of the stock price,and then the inflow of short-term international capital has a negative impact on the stock price.When the value of the RMB is expected to be lower,the increase of interest rate spread will lead to the rise of stock prices,while the impact of short-term international capital flows on stock prices is not significant.From the perspective of the impact of the stock market on the foreign exchange market,the influence of stock price and short-term international capital flow on exchange rate expectation is not significant.The effect of interest rate spread on exchange rate expectations is positive when short-term international capital flows is used as transition variables,especially in the large-scale capital withdrawal from the domestic market.It means the rise of foreign interest rates will lead the devaluation expectations of RMB.