LINKAGES BETWEEN EXCHANGE RATES AND STOCK PRICES: EVIDENCE FROM CHINESE FINANCIAL MARKETS

摘要

This paper employs panel unit root, co-integration and Granger causality tests to investigate the causality relationships between USD/RMB exchange rate and SSE Composite Index, by using daily data over the period of January 5, 2004 to February 27, 2009. The results indicate that exchange rates lead stock prices after the exchange rate reform, and stock prices lead exchange rates after the explosion of U.S. subprime crisis with a time delay. Furthermore, via impulse response functions and variance decomposition, it is found that U.S. stock prices play an important role in the linkages between the two markets in China.