An Empirical Study Of Correlation Between RMB Exchange Rate And Stock Market

The BEKK-GARCH model,extending from univariate GARCH model to a bivariate GARCH model,is mainly used to research the relationship between two dependent time series,especially used in studying the volatility spillover effects between two financial markets.In the frequency domain,the spectral analysis performs single-spectrum or cross-spectral analysis to study the periodicity existing in a single economic time series or correlation between several economic time series.Based on asymmetric BEKK-GARCH model and spectrum analysis,this paper studies the correlation between RMB exchange rate and stock market.First of all,through the Granger causality test,the impulse response function,and the construction of the asymmetric BEKK-GARCH model,we discuss the mean spillover effects and volatility spillover effects between exchange rate and stock market at four different stages.The study finds that the flow-oriented model is in line with China's foreign exchange market and stock market,which means there is a one-way mean overflow of the exchange rate to the stock market in China.Since the new round of exchange reform on August 11 in 2015,there is no longer a significant volatility spillover effect and leverage effect between the exchange rate and the Shanghai Composite Index,which shows that with the reform of the exchange rate reform by the central bank and the maturity of the stock market,the effectiveness of China's financial market has been greatly enhanced.Secondly,to find the transmission mechanisms between the exchange rate and stock market,this paper discusses interest rate,M2,international trade,international capital flows and consumer psychological expectations through the single-spectrum analysis and cross-spectrum analysis.The results show that the exchange rate can affect stock market through international trade,international capital flows and consumer psychological expectations.In the end,this article puts forward corresponding policy recommendations for China's exchange rate system reform,stock market construction and import and export trade policies.