The Co-movement Between Exchange Rate Risk And Stock Market Risk Based On Copula Model

The linkage between exchange rate risk and stock market risk is an important issue in the field of risk management.This paper expresses the exchange rate risk as the logarithmic change rate of the exchange rate,the stock market risk as the logarithmic change rate of the stock index,the GARCH-GPD model as their marginal distribution,and uses the Copula model to connect these edge distributions to establish their joint distribution.Use the Co VaR model to measure their mutual influence.In the empirical study,this paper selected four currencies:the US dollar,the euro,the Japanese yen,the Hong Kong dollar,and the Shanghai stock market and the Shenzhen stock market,which are major trading stocks in China,and studied the linkage relationship between exchange rate and risk in China's stock market.In the selection of sample data,this paper wants to study the linkage relationship between the stock market and the foreign exchange market by using as much data as possible.The sample interval for this article is set to be from January 4,2005 to December 30,2016.In the range of exchange rate and stock index,it includes both the appreciation period of RMB against various currencies and the rising period of stock index,as well as the depreciation period of RMB against various currencies and the falling period of stock index.The Copula model has great advantages for analyzing the correlation structure between variables.It can describe the non-linear and asymmetrical correlation patterns between variables,which cannot be achieved for ordinary linear correlation models.For the study of the relationship between exchange rate risk and stock market risk,the existing literature mainly discusses Granger causality of two types of risk and whether there are different influence mechanisms.In this paper,we use the Copula model to describe the correlation between the two types of risk at each time point,and select the most appropriate Copula function to describe the changes in the linkage structure of the two types of risk.Compared with the existing literature,this paper can provide more comprehensive information and better grasp the local characteristics and overall appearance of the two types of risk linkage.Through an empirical study of the linkage between exchange rate risk and stock market risk,we find that the impact from currency risk on stock market risk mainly depends on the stock market situation,and the impact increases when the stock index declines,and the impact from stock market risk on currency risk mainly depends on the currency market situation,and the impact increases when the domestic currency devaluation,and there is some difference among the impact from different currency risk on stock market risk,and many difference among the impact from stock market risk on different currency risk.These results help the investors design the right strategies,and regulators draw up the fit financial stability plans.