The Research Of Relationship Between RMB Exchange Rate And Stock Price Volatility

Foreign exchange market and stock market is an important part of China's financial market,it plays an important role in the stability of the financial market and the development of the national economy.Since the reform of RMB exchange rate system in July 21,2005,RMB exchange rate to implement a managed floating exchange rate system based on market supply and demand,reference to a basket of currencies.After the reform of exchange rate system,China's exchange rate elasticity increases,the degree of marketization increases,and Foreign exchange market and the domestic financial market more closely.Meanwhile,After the reform of equity system,especially since 18~thh CPC National Congress,The Central Committee put forward the strategy to improve the multi-level capital market system and promote the healthy development of multi-level capital market.Now the motherboard market,the GEM market,the new three board market and local equity transfer market initially established.The connection between Foreign exchange market and the stock market strengthened with the deepening of China's finance,it is of great significance to study the relationship between RMB exchange rate and China's stock price in order to prevent financial risks,promote the formation of exchange rate mechanism,promote the healthy development of multi-level capital market and the implementation of national strategy.In this paper,first we give a detailed description of the exchange rate and stock price related to the theory of flow oriented and stock oriented,then we give the transmission mechanism between exchange rate and stock price a depth analysis,these mechanisms include:interest mechanism,money supply mechanism,capital flow mechanism,internation--al trade mechanism,financial policy and psychological expectation mechanism.And then we use the CFETS RMB exchange rate index,QFII and other related data and charts to reflect the changes of China's foreign exchange market and the stock market.In this paper,we study the relationship between RMB exchange rate and stock price volatility by using the monthly data of RMB against the US dollar and the Shanghai Composite Index from 2005 to 2016,meanwhile,the gem index is selected to analyze the relationship between the RMB exchange rate and the stock price of the main board and gem.The empirical methods include ADF test,Johansen cointegration test,Granger causality test,impulse response function and variance decomposition.The results showed that:the RMB against the U.S.dollar and the Shanghai composite index was positively correlated with the gem index was negatively correlated;the motherboard stock price,the gem stock price and the exchange rate have the long-term stable cointegration relations;Granger causality test shows that there is a one-way causality between the central parity of RMB against the US dollar and the Shanghai Composite Index,the Granger causality test shows that there is one-way causality between the gem index and the central parity of RMB against the U.S.dollar,but the relationship is weak;finally variance decomposition,there is no obvious effect on the conduction mechanism between the RMB exchange and stock price,the impact of interest rate,money supply and international trade were limited.Finally,according to the empirical analysis conclusion,in order to provide some help for the monetary authorities to develop foreign exchange policy to promote the reform of the RMB exchange rate mechanism,to provide support for the improvement of China's multi-level stock market,we put forward some suggestions.