Research on the Linkage Between the Foreign Exchange Market of RMB and Chinese and American Stock Markets

Abstract

The linkage between financial markets is the important manifestation of the spreading of risks in different financial markets. With related data from January 2011 to November 2019, and VAR, BEKK-GARCH and DCC-GARCH model, this paper empirically analyzes the linkage between Chinese and American stock markets and the foreign exchange market of RMB. The estimate results show that the United States has significant horizontal spillover effect on the Chinese stock market, and the volatility spillover effect of Chinese and American stock markets is significant and two-way, and the Chinese stock market has significant one-way volatility spillover for the foreign exchange market of RMB. Moreover, the linkage between Chinese and American stock markets and the foreign exchange market of RMB is significantly time-varying.