The Study of the Interaction between the RMB Exchange Rate and Chinese Stock Price

Purpose – This paper aims to study the relationship between the RMB exchange rate change and the stock price change under the trend of economic globalization with more frequent global capital flow. Design/Methodology/Approach – In order to study the relationship between the change of the RMB exchange rate and the change of stock price, this paper adopts the daily exchange rate of RMB against the US dollar from January 1, 2016 to January 23, 2020 and chooses the price of the Shanghai Composite Index. The paper then uses the data in the same order and the single integer through the first-order difference VAR model by using the Granger causality test; according to the same model, the paper further studies the relationship between the weight plate index including financial index, China Securities coal, non-ferrous metals and China Securities steel and the exchange rate. Findings – It is found that the stock price is a one-way Granger of the exchange rate of RMB against the US dollar, while the stock price has a strong and negative response to the exchange rate change. The financial index and non-ferrous metals have an interaction with the exchange rate, while the coal index and the state bond steel have a unilateral impact on the exchange rate. Research Implications – The Chinese government should continue to promote the market-oriented reform of interest rates, increase the regulatory role of interest rates on stock prices, and strengthen the international liquidity and voice of RMB, so as to achieve the linkage effect between foreign exchange and the stock market. In addition, a multi-tiered capital market should also be developed so that the transmission of foreign exchange risks will not be concentrated in the stock market, but in various financial markets.