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Does Hot Money Impact Stock and Exchange Rate Markets on China?

Author

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  • Lee Yen-Hsien

    (Department of Finance, Chung Yuan Christian University, 200 Chung Pei Road. Chung Li 32023, Taiwan, R.O.C.)

  • Huang Ya-Ling

    (Department of Golden-Ager Industry Management, Chaoyang University of Technology, 168 Jifong E. R., Wufong Township, Taichung County 41349, Taiwan, R.O.C.)

  • Chen Tsu-Hui

    (International Master of Business Administration, Chung Yuan Christian University, 200 Chung Pei Road. Chung Li 32023, Taiwan, R.O.C.)

Abstract

This study investigates the impact of hot money on stock and exchange rate markets and the returns and volatility spillover between the stock and exchange rate market in China by using the monthly data covering the period from July 2005 to June 2013. This paper also uses the quantile approach to determine whether the hot money influences the stock and exchange rate markets. The results first reveal the long-run equilibrium relationship that is exhibited between the stock and exchange rate market. Second, hot money has an impact on the stock market but has no effect on the exchange rate market, according to the VECM-BEKK model. Third, regarding the volatility spillover effects on the stock and exchange rate markets, there is a spillover effect on the Shanghai stock and exchange rate markets. Hot money has an impact on the stock and exchange rate markets. Finally, we apply the quantile regression to determine the impact of hot money on low quantiles of the exchange rate and high quantiles of the Shanghai and Shenzhen stock market.

Suggested Citation

  • Lee Yen-Hsien & Huang Ya-Ling & Chen Tsu-Hui, 2017. "Does Hot Money Impact Stock and Exchange Rate Markets on China?," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 13(2), pages 95-108.
    • Handle: RePEc:usm:journl:aamjaf01302_95-108
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    References listed on IDEAS

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    1. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(1), pages 122-150, February.
    2. Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-971, December.
    3. Martin T. Bohl & Christian A. Salm & Michael Schuppli, 2011. "Price discovery and investor structure in stock index futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 31(3), pages 282-306, March.
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    Cited by:

    1. Mohamed Ibrahim Nor & Tajul Ariffin Masron & Tariq Tawfeeq Yousif Alabdullah, 2020. "Macroeconomic Fundamentals and the Exchange Rate Volatility: Empirical Evidence From Somalia," SAGE Open, , vol. 10(1), pages 21582440198, January.

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