Study On The Correlation Among Foreign Exchange Intervention?exchange Rate Expectation And Stock Price

With the persistent operation of reform and opening up and the deepen degree of RMB internationalization,Foreign exchange market and stock market play an increasingly important role in a country's economy.The exchange rate reform named"811" was implemented in 2015,in 2016 The RMB has officially joined the SDR basket of the international monetary fund,sino-us trade war appears in March 2018.With the ongoing reform of the exchange rate and the confusing international macro situation,Government intervention in foreign exchange has been accompanied by the operation of the foreign exchange market.In the past,many scholars studied the foreign exchange market and the stock market with the background of developed countries.However,the strategic research based on the capital market of developed countries is not necessarily suitable for China's foreign exchange market and stock market.Considering the actual situation of China's foreign exchange market,that is,China's central bank conducts long-term and normalized government intervention in foreign exchange,Government intervention has a huge impact on economic development and exchange rate expectation.Incorporating foreign exchange intervention into the whole theoretical system can make the research more consistent with the national conditions of developing countries.The trade flows between countries are more complex,and there are many hot money in the international market.The exchange rate expectation is the main reason for the international hot money flows.It is more realistic to analyze the relationship between the foreign exchange market and the stock market from the perspective of foreign exchange expectation.meanwhile,Reform of non-tradable shares was appeared in China's stock market,the Establishment of shanghai-hong kong stock connect and shenzhen-hong kong stock connect,the implementation of science and innovation are the reflects of continuous development of China's stock market.Therefore,this paper studies of the linkage between foreign exchange intervention,exchange rate expectation and stock market and the transmission pathways between them is of great significance to stabilize China's capital market and maintain the smooth operation of the economy.In terms of theory,this paper adopts three classical theories of foreign exchange market and stock market,and analyzes the history of foreign exchange intervention,foreign exchange expectation and the trend of stock market.Then the var-gearch-bekk model is established,and the whole data interval is divided into three stages,namely,before exchange rate reform,811 exchange rate reform to sino-us trade war and after sino-us trade war.The average spillover effect and volatility spillover effect of the three factors under different economic environments are analyzed and compared.The results show that there is always a positive mean spillover effect between the foreign exchange intervention index and the stock market.Before the 811 exchange rate reform and after the sino-us trade war,the exchange rate expectation had an average spillover effect on the stock market.The average spillover effect between exchange rate expectation and foreign exchange intervention would be different according to different macroeconomic environments.In terms of volatility spillovers,the expected exchange rate changes before the sino-us trade war were transmitted to foreign exchange intervention,and the volatility spillovers from foreign exchange intervention to the stock market were always there.There is no volatility spillover between the three after a trade war.After that,VECM models of seven variables including foreign exchange intervention,exchange rate expectation,stock market,short-term international capital flow,interest rate,money supply and trade surplus were built to test the conduction relationship among them.The test results show that foreign exchange intervention,exchange rate expectation and stock market have a long-term equilibrium relationship with each other,and the changes of the three will have a significant positive impact on the future.At the same time,the foreign exchange intervention in the long term has a positive correlation with the exchange rate expectation and the stock market respectively,that is,the central bank invests the base currency in the foreign exchange market,and the purchase of foreign exchange will lead to the favorable exchange rate expectation and the rise of the stock price and vice versa.In the long run,the exchange rate expectation is negatively correlated with the stock price,and the positive exchange rate expectation will lead to the decline of stock prices.In the short term,exchange rate expectation,stock price and short-term international capital flow all have a negative correlation with foreign exchange intervention,while money supply has a positive correlation with foreign exchange intervention.Short-term international capital flow is negatively correlated with trade surplus on exchange rate expectation,while money supply is positively correlated with stock market.According to the variance decomposition,exchange rate expectation and short-term international working capital are the major factors that are affected by foreign exchange intervention.Exchange rate expectation has a certain impact on foreign exchange intervention and international trade surplus.Meanwhile,foreign exchange intervention,exchange rate expectation and money supply are greatly affected by the stock market.Finally,according to the above empirical results,the corresponding policy recommendations are put forward.such as Promote the internationalization of the RMB,the capital market reform in an orderly manner,Guide investors to form reasonable psychological expectations and strengthen the management of exchange rate expectations,The country needs to strengthen the monitoring of short-term international capital flows,establish a more perfect foreign exchange risk management system and strengthen foreign exchange intervention.Improve the stock market infrastructure construction,strengthen supervision while appropriate intervention.