F. Qi and B. Tian (PRC)
Exchange rate, Stock price, Co-integration, Granger causality
This paper employs panel unit root, co-integration and Granger causality tests to investigate the causality relation ships between USD/RMB exchange rate and SSE Compos ite Index, by using daily data over the period of January 5, 2004 to February 27, 2009. The results indicate that ex change rates lead stock prices after the exchange rate re form, and stock prices lead exchange rates after the explo sion of U.S. subprime crisis with a time delay. Further more, via impulse response functions and variance decom position, it is found that U.S. stock prices play an important role in the linkages between the two markets in China.
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