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Impact of exchange rate regime reform on asset returns in China

Hua, Xiuping and Sun, Laixiang and Wang, Tianyi (2015) 'Impact of exchange rate regime reform on asset returns in China.' European Journal of Finance, 21 (2). pp. 147-171.

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Abstract

Employing monthly data over the period 1999–2010, this paper examines the impact of China’s exchange rate regime reform in July 2005 on three major asset markets: house, land, and stocks. We test whether the reform, which switches from a fixed exchange rate regime to a managed floating one, has brought forward structural changes to asset return dynamics. The results suggest that the exchange rate regime switch exerted the most significant impact on house and land returns at the national level, in terms of both returns and their volatilities. In contrast, its impact on China’s stock market was moderate, with no structural change being detected in its returns and only weak structural change being found in the dynamics of its volatility. We also find that in comparison with other popular explanatory variables, broad money supply and inflation have the largest explanatory power on housing and land returns in China after the policy reform.

Item Type: Articles
Keywords: exchange rate regime; asset returns; structural break; broad money supply; China
SOAS Departments & Centres: Faculty of Law and Social Sciences > School of Finance and Management
ISSN: 1351847X
DOI (Digital Object Identifier): 10.1080/1351847X.2013.838183
Depositing User: Laixiang Sun
Date Deposited: 30 Sep 2013 15:20
URI: http://eprints.soas.ac.uk/id/eprint/17119

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