Abstract: The reform of the exchange rate mechanism and the split-share structure strengthen the integration of China's foreign exchange market and the stock market. In the near term, the continuous evolution of the pressure of RMB appreciation and the outbreak of several major economic crisis further enhance the correlation between the two markets. The volatility spillover effect between the domestic foreign exchange market and stock market is investigated using the wavelet multi-resolution analysis and Multivariate BEKK-GARCH(1, 1) model. Empirical results not only show that significant volatility spillover effects between the two markets exist, and the two markets exist different volatility spillover effects with different trading cycle, that is, in the short-term the stock market pass the one-way effect to the foreign exchange market. With the cycle becomes longer it develops to be bidirectional spillover effects, among which the foreign exchange market to the stock market volatility spillover effects are more intense. In the long-term only minor spillover effects are passed to foreign exchange market from the stock market.

Key words: foreign exchange market, stock market, volatility spillover effect, wavelet multi-resolution analysis, multivariate BEKK-GARCH(1,1)