Research On The Correlation Between The RMB Exchange Rate And China's Stock Index

With the overall deepening of China's capital market reform,the financial market has been strengthened.In order to stabilize the development of the financial market and promote the reform of the market,it is of great significance to study the interaction between the stock market and the foreign exchange market.Firstly,on the base of the current economic openness and the managed floating exchange rate system,this paper analyzes the IS-LM-BP model and the heterogeneous investor theory model from the macro and micro level,and finds that the relationship between the exchange rate and the stock price is time-varying.On the empirical research,in view of the comprehensiveness of the empirical analysis,this paper uses the linear VAR model and the MS-VAR model to analyze the monthly data of the exchange rate,the closing price of the Shanghai Composite Index and the Shenzhen composite index,the sample time is from August 2005 to December 2017.The empirical result shows that the effect of exchange rate fluctuation on stock price is significantly greater than the influence of stock price fluctuation on exchange rate.The MS-VAR model results show that the relationship is different under different regimes.In the regime 1(with the small volatility of the exchange rate),the appreciation of the RMB will lead to a rise in the stock price;in the regime 2(with sharp volatility of the exchange rate),the appreciation of the RMB will increase the stock price in a short time,and then the stock price falls.Under the two regimes,the rise of share price leads to the appreciation of RMB.At the same time,comparing the response degree of the two stock index to the impact of the exchange rate volatility,it is found that the negative impact of the exchange rate fluctuation on the Shanghai composite index is greater than the impact on the Shenzhen Composite Index in the regime 1;while in the regime 2,in the early stage,the situation is opposite,and the negative impact on Shenzhen composite index is relatively protracted,which is closely related to the market positioning,the size of the listed company and the investment style of different stock markets.Finally,this paper puts forward some suggestions for the behavior subjects: the relevant departments should strengthen the risk management,promote the market-oriented reform of the exchange rate,standardize the development of stock market,perfect the transmission channels between the markets;the investors and enterprises should adjust the investment strategy and enterprise management according to the circumstances,prevent different risks.