Research On The Correlative Between Stock Market And Foreign Exchange Market

After July 21,2005,our country's exchange rate regime had reformed,named managed floating exchange rate regime,which is different from completely marketization of floating exchange rate and capital control of fixed exchange rate regime.after exchange rate reform,RMB entered into a channel of appreciation,stock market also rose sharply during this period,but amid the financial crisis in 2008,stock market experienced a disaster,RMB appreciation slowed down,even it depreciated in some periods.From 2011 to the end of 2016,RMB first appreciate,then it depreciates,stock market fluctuated in the same period.June 2014 to May 2015,stock market experiences a big bull market,but exchange rate fluctuated.Recently,the pace of RMB's internationalization accelerated,and RMB continued to depreciate.Exchange rate liberalization is also driving.Exploring the correlation between exchange rates and stock prices is very significant for maintaining the stability of the financial markets and controlling the risk of financial markets.This paper studies the correlation between exchange rates and stock prices by using daily the data of Shanghai securities composite index and RMB exchange rate,the sample period runs from January 1,2011 to December 31,2016.Co-integration tests are applied to analyze the correlation between exchange rates and stock prices.In addition,Granger causality tests variance decomposition and impulse response function based on Vector autoregressive are used to analyze the data.Our empirical results show that:(a)there are no co-integration relationship between the two markets;(b)the causality is unidirectional from the stock's price to exchange rates under the significance level of 5%;(c)impulse response shows that stock market returns impulse is response by foreign exchange rate returns at short run,but foreign rate exchange returns impulse is not response by stock market returns;(d)on the stock market returns variance decomposition,exchange rate market returns on stock market returns in the reflected immediately,with the passage of time,the impact increases,finally exchange rate stability error prediction of market revenue in the 0.8%,contribution to the exchange rate,market returns for the variance decomposition,the influence of stock market on the exchange rate returns reflected in the second stage,with the passage of time,the impact increases,finally return in the stock market to predict the stability of the error contribution in 0.3%.At last,we make a further analysis for empirical results by using the capital flow theory and balance of payments,and give the relevant policy recommendations.