The Research on the Influence of Foreign Exchange Risk Exposure to Chinese Stock Markets in the Post-crisis Era

In this paper, the main purpose is to interpret how the fluctuations of exchange rate affects the stock market, and analyse the influence of foreign exchange risk exposure to overall enterprise value in China. In the research, the expanded Alder-Dumas model is applied to measure the extent of foreign exchange risk exposure, and determine the relationship between foreign exchange risk exposure and price index of stock market (as the proxy for overall enterprise value) via the coefficient of the RMB trade weighted exchange rate. Additionally, trade weighted exchange rate of RMB, which is consisted of eight main currencies that are the most important and widely used in the import and export trade of China, is utilized to reveal the effect of multi-currency-to-RMB exchange rates to enterprise value. According to the result of regression test, it is convinced that there is a negative relation between price index and trade weighted exchange rate of RMB as the coefficients of foreign exchange risk exposure for Shanghai and Shenzhen stock market in China are negative. Namely, the appreciation of RMB can incur the increase of the price index of stock market for most of Chinese economic entities, so that the overall enterprise value is also raised, and vice versa. Furthermore, tremendous changes in price index of stock market resulted from the unpredicted variation of exchange rate can be interpreted as the substantial outflows of overseas capitals from the domestic stock market.