Empirical Studies of the Relationship between RMB Exchange Rate and Stock Prices

Abstract

Studies of the relationship between Exchange rate and stock price volatility after the 2008 international financial crisis, preventing financial risks of China, and consummating capital markets and foreign exchange mechanism is theoretically and practically significant. The classification based on the causality between price and exchange rate, puts the financial crisis exchange rate and Shanghai Composite index into the assumption that there is a causal relationship, from January 2008 to June 2014, between RMB exchange rate index and empirical analysis based on rolling correlation analysis method. There is a studies result that, there is contemporaneous correlation between the real exchange rate of RMB against the U.S. dollar and the trend of Shanghai composite index, and there is an advance correlation from Shanghai composite index's volatility relating to currency volatility. This article based on TodaYamamoto causality test, found that there is an interrelationship of Granger causality between the actual fluctuation of exchange rate and the Shanghai composite index, and there is no Granger causality between the trend of actual exchange rate and the trend of Shanghai composite index movements.