Research On The Dynamic Correlation Between China's Stock Market And Foreign Exchange Market

The share price of a country is "barometer" of the economy,which reflects the basic situation of the domestic economy.The exchange rate is a currency parity,which reflects changes in purchasing power of money.In the development process of financial globalization,the links between financial markets are more closely,on the other hand,the financial market volatility tends to have an impact on other financial markets.With the development of China's financial reform,the stock market of China and the correlation between the foreign exchange market is gradually strengthened.Today,the domestic economic reform of China is deepening,financial reform has also been pushing the stock market and foreign exchange market as an important sub-two financial markets.In addition,links between the two markets attract more and more attention.Grasp of relevance of the Chinese stock market and foreign exchange market not only help a profound understanding of the correlation between the financial markets,but also has important practical significance for China to guard against financial risks,and further to promote financial reform.In this paper,I use sample data from July 22,2005 to December 31,2015,to study the Dynamic Relationship between Chinese stock market and foreign exchange markets.Apart from that,I make an empirical analysis based on price correlation and volatility associated with two aspects between the two markets.In this paper,I apply impulse response,also Granger causality test,including cointegration analysis and other methods to analyze the long-term equilibrium relationship between the Chinese stock market and the foreign exchange market.On the basis,Markov Regime-switching model is used to analyze the stock market and foreign exchange market characteristics of structural change.In this paper,I also use multivariate GARCH model to analyze the relevance of Chinese stock market volatility and foreign exchange markets.We come to the completion as mentioned:(i)Chinese exchange rate and stock returns yield has a long-term equilibrium relationship;(ii)In relation to the price terms,China's stock market has a greater impact on the foreign exchange market than the stock market on the foreign exchange market;(iii)Correlation between Chinese stock market and foreign exchange market has obvious system conversion characteristics;(iv)The stock market and foreign exchange market showed a significant negative correlation(v)On the two markets in terms of volatility spillovers,stock market fluctuations has one way to the foreign exchange market spillovers.The theoretical analysis and empirical conclusions contains a profound policy implications for the reform of China's stock market and the foreign exchange market,which also have important reference value for the national macro-control policies.On the one hand,In the chinese financial reform process we should reckon the effective coordination in the interaction between financial markets.The study can be characterized by a profound understanding of the linkage of Chinese stock market and foreign exchange market,and it consider the linkage to the overall reform of Chinese finance characteristics which provides the basis of theoretical and practical reference for the coordinated development of financial markets.On the other hand,the linkage features between Chinese stock market and foreign exchange market also includes the risk of contagion between the two markets.Therefore,affected by external shocks,we need to take positive measures to guard against financial market risk of infection.This study for the prevention of systemic financial risk is significant.In this paper,the relevance dynamic study of Chinese stock market and the foreign exchange market make us recognize the two long-term changes in market correlation,structural changes and a series of features in the complicated economic and financial environment.Therefore,the proposed research and relevant policy recommendations in this paper has a certain reference value for the development of China's financial market.