The Time-varying Influence Of RMB Exchange Rate On Stock Index

Preventing systematic financial risks is the eternal theme of financial work.Under different economic backgrounds,the relationship between the foreign exchange market and the stock market has time-varying changed.Accurately grasping the linkage mechanism between them,and studying the time-varying characteristics of the impact of the RMB exchange rate on the stock index are the requirements for developing financial markets and preventing systemic financial risks.Existing research has affirmed the relationship between exchange rate and stock index,and believes that the impact of exchange rate on stock index is mainly achieved through trade balance mechanism,short-term international capital flow mechanism and money supply mechanism.However,most of the literature focuses on the exploration of the linear influence between the two,while objective facts have repeatedly suggested that the impact of the exchange rate on the stock index may be time-varying.The existing empirical literature on the non-linear relationship between the two is the segmentation study of the artificially divided sample interval,and it is not comprehensive,objective and accurate to show the impact of the exchange rate on the stock index at each time point.The time-varying parameters vector autoregressive model(TVP-VAR model)improved in 2011 can make up for these shortcomings,and can more fully and objectively describe the time-varying relationship between variables.The change of internal structure of its mechanism can not be neglected in exploring the time-varying influence.This paper based on literature analysis and flow-oriented theory,capital flow theory,asset portfolio balance theory,uses TVP-VAR model to explore the time-varying characteristics of exchange rate impact on stock index,and the time-varying characteristics of the effect of the influence mechanism.Combined with literature analysis,theoretical analysis and empirical analysis,it is concluded that the impact of the RMB exchange rate(direct quotation method)on the stock index is time-varying in both direction and degree of influence.The main performance is negative impact,and the negative impact is more intense in the periods of the exchange rate regime reform.But in the financial crisis stage,the negative impact between the two will be weakened or even reversed.From the perspective of the mechanism of action,the effect of the trade balance mechanism is mainly as a positive impact,and the mechanism of influence from trade balance to stock price is time-varying;The short-term international capital flow mechanism is time-varying,mainly showing negative impact.In the period of exchange rate regime reform,the negative impact between the two is stronger than in other periods.In the period of financial crisis,the negative impact between the two will weaken or even reverse its direction;The effect of money supply mechanism is time-varying,which is mainly negative.In our country,it has a strong influence on the stage of exchange rate management and adjustment,but it has a weak influence on the rest of the period.With the reform of exchange rate marketization,the influence of exchange rate on stock index through money supply mechanism is gradually weakening;The impact of RMB exchange rate on stock index through the three major mechanisms is lagging,but the empirical results of the impact of exchange rate on stock index show that the short-term effect is greater than the long-term effect.It is inferred that speculators' psychological expectations may lead to irrational real-time speculation.We should pay attention to the time-varying impact of exchange rate on stock index,make rational use of foreign exchange intervention,steadily promote the marketization of exchange rate,and guide investors to form reasonable psychological expectations.There are 29 figures,5 tables and 80 references in this paper.