The Stock Price Of China And The Exchange Rate: A Quantile Autoregressive Distributed Lag Model

This paper uses an innovative method through combining autoregressive distributed lag model and a quantile regression, called a quantile autoregressive distributed lag model, to examine the dynamic long-run equilibrium and short-run causal relationship between the stock price of China and the RMB/USD exchange rate from January 1994 to June 2016. The results indicate that there is long-run cointegration relationship between the stock price of China and the RMB/USD exchange rates at lower and higher distributions of exchange rates. The causality results show that there is unidirectional causality running from the RMB/USD exchange rate to China stock price at lower and higher distributions of stock prices. The result shows that there is evidence in favor of the goods market hypothesis in China. Key-words: Exchange rates, Stock prices, Autoregressive distributed lag model, A quantile regression, China, Cointegation