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Dynamic relationship between exchange rate and stock price: Evidence from China


  • Zhao, Hua


The paper empirically analyzes the dynamic relationship between Renminbi (RMB) real effective exchange rate and stock price with VAR and multivariate generalized autoregressive conditional heteroskedasticity (GARCH) models using monthly data from January 1991 to June 2009. The results show that there is not a stable long-term equilibrium relationship between RMB real effective exchange rate and stock price. There are also not mean spillovers between the foreign exchange and stock markets. Furthermore, the paper examines the cross-volatility effects between foreign exchange and stock markets using likelihood ratio statistic. There exist the bidirection volatility spillovers effects between the two markets, indicating the past innovations in stock market have the great effect on future volatility in foreign exchange market, and vice versa.

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  • Zhao, Hua, 2010. "Dynamic relationship between exchange rate and stock price: Evidence from China," Research in International Business and Finance, Elsevier, vol. 24(2), pages 103-112, June.
  • Handle: RePEc:eee:riibaf:v:24:y:2010:i:2:p:103-112

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    References listed on IDEAS

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    1. Walid, Chkili & Chaker, Aloui & Masood, Omar & Fry, John, 2011. "Stock market volatility and exchange rates in emerging countries: A Markov-state switching approach," Emerging Markets Review, Elsevier, vol. 12(3), pages 272-292, September.
    2. repec:kap:openec:v:29:y:2018:i:1:d:10.1007_s11079-017-9472-x is not listed on IDEAS
    3. Irena Vodenska & Alexander P. Becker & Di Zhou & Dror Y. Kenett & H. Eugene Stanley & Shlomo Havlin, 2016. "Community Analysis of Global Financial Markets," Risks, MDPI, Open Access Journal, vol. 4(2), pages 1-15, May.
    4. Al-Shboul, Mohammad & Anwar, Sajid, 2014. "Pricing of the currency risk in the Canadian equity market," Research in International Business and Finance, Elsevier, vol. 30(C), pages 173-194.
    5. repec:eee:jimfin:v:77:y:2017:i:c:p:39-56 is not listed on IDEAS
    6. Koutmos, Dimitrios, 2016. "Distilling private information from plain-vanilla options to predict future underlying stock price volatility: Evidence from the H-shares of Chinese banks," Research in International Business and Finance, Elsevier, vol. 37(C), pages 391-405.
    7. Wang, Gang-Jin & Xie, Chi & Jiang, Zhi-Qiang & Eugene Stanley, H., 2016. "Who are the net senders and recipients of volatility spillovers in China’s financial markets?," Finance Research Letters, Elsevier, vol. 18(C), pages 255-262.
    8. Tsagkanos, Athanasios & Siriopoulos, Costas, 2013. "A long-run relationship between stock price index and exchange rate: A structural nonparametric cointegrating regression approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 106-118.
    9. Sui, Lu & Sun, Lijuan, 2016. "Spillover effects between exchange rates and stock prices: Evidence from BRICS around the recent global financial crisis," Research in International Business and Finance, Elsevier, vol. 36(C), pages 459-471.
    10. Baruník, Jozef & Kočenda, Evžen & Vácha, Lukáš, 2017. "Asymmetric volatility connectedness on the forex market," Journal of International Money and Finance, Elsevier, vol. 77(C), pages 39-56.
    11. Corina Saman, 2015. "Asymmetric Interaction between Stock Price Index and Exchange Rates: Empirical Evidence for Romania," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 90-109, December.
    12. Andrieș, Alin Marius & Ihnatov, Iulian & Tiwari, Aviral Kumar, 2014. "Analyzing time–frequency relationship between interest rate, stock price and exchange rate through continuous wavelet," Economic Modelling, Elsevier, vol. 41(C), pages 227-238.
    13. Samson, Lucie, 2013. "Asset prices and exchange risk: Empirical evidence from Canada," Research in International Business and Finance, Elsevier, vol. 28(C), pages 35-44.
    14. repec:eee:reveco:v:49:y:2017:i:c:p:340-352 is not listed on IDEAS
    15. Apergis, Nicholas & Artikis, Panagiotis & Sorros, John, 2011. "Asset pricing and foreign exchange risk," Research in International Business and Finance, Elsevier, vol. 25(3), pages 308-328, September.
    16. Chen Kuo, 2013. "Is the liberalization policy effective on improving bivariate cointegration of current accounts, foreign exchange, stock prices? Further evidence from Asian markets," Quality & Quantity: International Journal of Methodology, Springer, vol. 47(4), pages 1923-1941, June.
    17. repec:gam:jrisks:v:4:y:2016:i:2:p:13:d:70032 is not listed on IDEAS
    18. Su, Jung-Bin, 2015. "Value-at-risk estimates of the stock indices in developed and emerging markets including the spillover effects of currency market," Economic Modelling, Elsevier, vol. 46(C), pages 204-224.
    19. Liu, Li & Wan, Jieqiu, 2012. "The relationships between Shanghai stock market and CNY/USD exchange rate: New evidence based on cross-correlation analysis, structural cointegration and nonlinear causality test," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(23), pages 6051-6059.


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