Abstract
This paper selects the daily data of the exchange rates of Chinese Yuan (CNY) over the currencies of 14 countries along the Belt and Road, Shanghai composite index and Shenzhen composite index to study the influence of the Belt and Road Initiative on the linkages between exchange rates and Chinese stock index based on the flow-oriented model and the stock-oriented model. To reflect the fluctuations in daily data and reduce the central bank's interference with the exchange rate, two fuzzy techniques are used to process data, that is, the centroid based measure and the integral based measure. Then we judge the relationship between exchange rate and stock index through the Pearson correlation coefficient and the Granger causality test. Besides, we further compare the results and their differences by the classic crisp method and our two fuzzy techniques, which enable us to judge their correlation more accurately, and provide a reference for a wider application of the proposed fuzzy methods. We find that there is a correlation between exchange rate and stock index under certain conditions, and the Belt and Road initiative strengthens the relationship between the Chinese foreign exchange market and the stock market, more importantly, the fuzzy techniques are effective to judge this relation.
Highlights
The exchange rate is the international price of the domestic currency, which reflects m economic fundamental change of the domestic currency’s international purchasing power
ANALYSIS OF THE CORRELATION BETWEEN EXCHANGE RATE AND STOCK INDEX The Pearson correlation coefficient r is used to reflect the degree of linear correlation between two variables
We analyzed the correlation between exchange rates and stock indexes during the study period in this paper
Summary
The exchange rate is the international price of the domestic currency, which reflects m economic fundamental change of the domestic currency’s international purchasing power. The stock price index can quickly reflect the subtle changes in the real economy. Equity markets and currency markets both play a facilitating role in economic, and are expected to interact with each other. With the acceleration of the global economic integration, financial markets will be more closely related. Exchange rate fluctuations and stock price fluctuations will have greater interaction. Most existing studies on the relationship between exchange rate and stock index focus on developed countries [3], [10], The associate editor coordinating the review of this manuscript and approving it for publication was Hualong Yu
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