THE CORRELATION BETWEEN CHINA’S FOREIGN EXCHANGE MARKET AND STOCK MARKET―AN EMPIRICAL ANALYSIS BASED ON VAR AND MS-VAR MODEL
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Abstract
The relationship between foreign exchange markets and stock markets is an important topic in macroeconomic research all over the world, especially in western academic circles. However, due to the late start of the marketization of the RMB exchange rate and the development of the stock market compared with western countries, there is still a relative lack of research on the relationship between them in Chinese academic circles. However, with the steady progress of China’s financial market reform and the increasing economic openness, the systematic and comprehensive study of the relationship between China’s foreign exchange market and stock market has become one of the most important topics for today’s researchers. By selecting the monthly data from July 2005 to December 2020 as the research sample, the exchange rate return rate and the stock index return rate were used to measure the foreign exchange market and the stock market, and the VAR model and MS-VAR model were used for empirical research. Subsequently, the following research conclusions were drawn: 1) The VAR model was used for analysis, and it was found that the fluctuation of the foreign exchange market affects the stock market, but the fluctuation of the stock market does not affect the foreign exchange market. 2) The MS-VAR model was used for analysis, and it was found that after identifying the different regional systems, when the economic environment is good, the stock market and the foreign exchange market have a strong correlation, but when the economy is continually depressed, the correlation between the two is weak. 3) From the perspective of the different regional systems, the conversion frequency among the various systems is low, but there is still the phenomenon of conversion between the different regional systems, especially during a state of economic downturn, when the conversion between different regional systems is more frequent.
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