THE IMPACT OF RMB EXCHANGE RATE ON THE CHINESE STOCK MARKET: AN EMPIRICAL EXAMINATION BASED ON THE VAR MODEL

Abstract

Based on monthly data from August 2015 to December 2025, this study selects the RMB/USD central parity rate and the CSI 300 Index to construct a vector autoregression (VAR) model, empirically examining the direction and magnitude of the RMB exchange rate's impact on the Chinese stock market. The results indicate that: first, there is no long-run cointegration relationship between the RMB exchange rate and the CSI 300 Index, suggesting the absence of a stable equilibrium linkage between the two; second, RMB exchange rate movements exert a short-term negative effect on CSI 300 returns, meaning that RMB depreciation is associated with declining stock market returns, exhibiting a "seesaw" pattern, yet this effect is short-lived and decays rapidly; third, Granger causality tests reveal no significant causal direction between the two variables; fourth, variance decomposition demonstrates that over 86% of the variation in the CSI 300 Index is explained by its own factors, with exchange rate shocks contributing only approximately 14%. These findings collectively suggest that while the RMB exchange rate does affect the Chinese stock market in the short run, the effect is weak and transient, and stock market movements are primarily driven by internal factors, with the exchange rate not serving as a dominant force behind A-share trends. Accordingly, policy recommendations are proposed, including deepening exchange rate marketization reform, enhancing cross-border capital flow monitoring, and cultivating long-term institutional investors.