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Do short-term international capital movements play a role in exchange rate and stock price transmission mechanism in China?

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  • Li, Xin
  • Su, Chi-Wei
  • Chang, Hsu-Ling
  • Ma, Ji

Abstract

This paper applies wavelet analysis to investigate the role of short-run international capital movements (SICM) in the interaction mechanism between the exchange rate and stock prices (SP). The bilateral co-movements between these three variables are time-varying and inconsistent in some periods, and the flow of SICM is insufficient to explain the difference between the results obtained by testing SP and exchange rate nexus alone and then testing it taking SICM as a control variable, thus indicating a limited mediating role for SICM. However, SICM still cannot be ignored with the process of Renminbi internationalization and capital account liberalization.

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  • Li, Xin & Su, Chi-Wei & Chang, Hsu-Ling & Ma, Ji, 2018. "Do short-term international capital movements play a role in exchange rate and stock price transmission mechanism in China?," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 15-25.
    • Handle: RePEc:eee:reveco:v:57:y:2018:i:c:p:15-25
    DOI: 10.1016/j.iref.2018.02.010
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    3. Firouzi, Shahrokh & Wang, Xiangning, 2021. "The interrelationship between order flow, exchange rate, and the role of American economic news," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).

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    More about this item

    Keywords

    Exchange rate; Short-term international capital movements; Stock price; Wavelet analysis;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G1 - Financial Economics - - General Financial Markets

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