Abstract: By constructing a theoretical framework of the impact of RMB carry trade on the stock market, this paper uses the NARDL model to conduct an investigation of the asymmetric effects of RMB carry trade on the yield rate and the volatility of stock markets. The findings show that: (1) the short-term impact of RMB carry trade on the stock markets is not significant, but the long-term effect has significant heterogeneity in different periods, namely, when the excess return of RMB carry trade is negative, the yield rate of the stock market will be reduced; when the excess return is balanced, the yield rate of the stock market will not be significantly affected; and when the excess return is positive, the yield rate of the stock market will be improved; and there is no asymmetric features. (2) the short-term and long-term impacts of RMB carry trade on the stock market volatility is not statistically significant, that is, the current RMB carry trade is not the main reason for the stock market volatility; however, in terms of the direction, size and trend of the estimated coefficients, the impact of RMB carry trade on the stock market volatility is becoming greater and more and more prominent with the deepening of the capital account liberalization. Thus it can be seen that RMB carry trade is one of the important factors affecting the stability of China’s financial market, during the process of RMB internationalization and the capital account liberalization, RMB carry trade should be incorporated into the prudential regulatory framework to prevent the harm resulted from RMB carry trade from affecting the financial market and real economy.

Key words: carry trade; stock market; systematic financial risk; capital account liberalization; NARDL model