A Study On The Interaction Between Exchange Rate Expectation And Stock Price

In a new era in which global economic integration and the world economy are becoming increasingly interconnected,as a big country in emerging economies,China has become increasingly irreplaceable in the world and faces more changes and challenges.Under the background of such times,the linkage between China's foreign exchange market and the stock market is increasing day by day.The reform of exchange rate market and the development of stock market show more and more correlations.The interaction between the two markets is very important for the financial markets health and economic steadily development.It will also provide reference for monetary authorities to formulate monetary policy and exchange rate policy.This article discusses the internal relations between the two markets through the study of exchange rate expectations and stock prices in order to find out the linkage and mechanism among them.It selects the CSI 300 Index and SME Index to represent the Shanghai and Shenzhen main board market and the SME board market respectively,introduces short-term capital flows and money supply as intermediary variables for the study of exchange rate expectations and stock prices,and uses structural constraints SVAR model,on the exchange market and the different stock sub-market linkage between the in-depth analysis.Due to asymmetric information in the market,it is very difficult for foreign exchange market traders to obtain all the same information.Even if all the information is available,the traders will make different judgments due to individual heterogeneity.Therefore,there is a heterogeneity in exchange rate expectations in the foreign exchange market.That is,some traders make forecasts through the regression of fundamental information while others judge the expectation through technical inferences.By constructing a heterogeneous exchange rate anticipation model,this article considers the role of the two foreign exchange traders in combination and represents the current situation of the foreign exchange market more than the traditional NDF substitution variables.The research result of this article shows that in the mainboard market,the expected effect of exchange rate on stock prices is weak,mainly due to the smaller impact of money supply on the main board stock market during the transmission,while SME Board has obvious play.In the study of the reverse effect of exchange rate expectations on the stock market,both the main board and the SME board will exert some influence on the exchange rate expectations,with the impact being transmitted through short-term capital flows and the money supply.The article concludes with the empirical results and puts forward some policy recommendations.