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Currency Appreciation and Stock Market Performance: Evidence from China

Author

Listed:
  • Bing Zhang

    (School of Management and Engineering, Nanjing University, Nanjing 210093, China)

  • Xindan Li

    (School of Management and Engineering, Nanjing University, Nanjing 210093, China)

Abstract

This paper analyzes the relationship between the change of the exchange rate and the performance of the Chinese stock market after exchange rate regime and split share structure of stock market reformed in 2005, which is important for us to understand the linkages and mechanisms between the two markets deeply. We find that the exchange rate is highly related with the stock market, and there exists long-term cointegration. The results demonstrate that in the long term, the relationship between the two variables mainly belongs to flow-oriented model; Shanghai A Share index is influenced by the exchange rate, yet Shanghai B Share index has shown less indication of long term interrelation with the exchange rate. In the short term, the relationship between the two variables mainly belongs to stock-oriented models, there are inter influence between the stock market and the exchange market. The paper further analyzes the possible influence of different sector indices to exchange rates. Finally, the paper puts forward some advices and policy suggestions.

Suggested Citation

  • Bing Zhang & Xindan Li, 2010. "Currency Appreciation and Stock Market Performance: Evidence from China," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 5(3), pages 393-411, September.
    • Handle: RePEc:fec:journl:v:5:y:2010:i:3:p:393-411
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    File URL: http://journal.hep.com.cn/fec/EN/10.1007/s11459-010-0104-2
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    More about this item

    Keywords

    exchange rate; stock price; cointegration;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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