The Impact Of RMB Exchange Rate Fluctuation On Shanghai And Shenzhen Bank's Stocks

After the foreign exchange reform in 2005,the volatility of the RMB exchange rate obviously increased,and it showed a steady,high-frequency dynamic appreciation.In the domestic stock market,due to the close relationship between the daily stock return,macroeconomic environment and the company's own conditions,Exchange rates can affect stock prices naturally.In this precondition,studying the interaction between the RMB exchange rate and the Shanghai and Shenzhen stock markets helps us to correctly understand the transmission mechanism of the RMB exchange variable-ratio on the Shanghai and Shenzhen stock market prices.On the other hand,we can avoid the stock market and the exchange rate market's adverse factors to ensure the healthy development of financial markets.This paper analyzes the inherent relationship between exchange rate and stock market theoretically,combs the transmission mechanism of the exchange rate fluctuations on the stock market price;secondly,take the empirical study of the banking sector stocks of China's Shanghai and Shenzhen markets for 2005-2016 Data as the basis,established a second-order VAR model with endogenous variables such as the exchange rate of RMB against US dollar and the daily stock returns of the 16 banks in the banking sector of the Shanghai and Shenzhen stock markets.And use econometric method such as The Granger causality analysis,impulse Response function analysis,variance decomposition to study the mathematical logic between the variables.From the microscopic point of view to study the RMB nominal effective exchange rate and the changes in the banking sector stocks.The experimental results show that the overall exchange rate is inversely related to the stock prices of banks,that is,the exchange rate declines and the prices of banking stocks rise.On the contrary,the exchange rate rises and the prices of banking stocks fall.From this we can conclude that a declining exchange rate(RMB appreciation)will promote the operation and development of China's banking industry and eventually lead to the rise of the banking sector stock price.In addition,the fluctuation of RMB exchange rate has different impacts on banks of different types and sizes.The data shows that among the listed banks,the nationalized bank such as CCB,BOC,BOCOM;joint-equity banks such as CEB,CITIC,SPDB,and BOB are more affected by exchange rate fluctuations.Granger causality test proves further that the two-way causal relationship between RMB exchange rate and bank stock price.