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CN 34-1054/N

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Empirical research on price discovery in RMB foreign exchange markets from the perspective of development

  • School of Management, University of Science and Technology of China, Hefei 230026, China

Cite this:
https://doi.org/10.3969/j.issn.0253-2778.2017.03.007
  • Received Date: 13 October 2015
  • Accepted Date: 05 February 2016
  • Rev Recd Date: 05 February 2016
  • Publish Date: 30 March 2017
    Abstract

  • Abstract

    RMB exchange rate reformation has been deepening over the past decade. During this RMB internationalization process, one of the most important research issues is how the price relationship has been developing among the onshore spot market, onshore forward market, offshore spot market, offshore forward market and non-deliverable forward market. Based on the co-integration, vector error correction (VEC) model and information share (IS) model, price discovery mechanism among these five markets of seven periods was studied. The result shows that non-deliverable forward (NDF) market has greater price discovery ability before the emergence of the offshore market. However, as the result of easing policies and the development of the offshore market, the centrality of market price information is gradually transferred from the non-deliverable forward market to the offshore market. It is expected that the offshore market will play the main role in the price discovery mechanism.

    Abstract

    RMB exchange rate reformation has been deepening over the past decade. During this RMB internationalization process, one of the most important research issues is how the price relationship has been developing among the onshore spot market, onshore forward market, offshore spot market, offshore forward market and non-deliverable forward market. Based on the co-integration, vector error correction (VEC) model and information share (IS) model, price discovery mechanism among these five markets of seven periods was studied. The result shows that non-deliverable forward (NDF) market has greater price discovery ability before the emergence of the offshore market. However, as the result of easing policies and the development of the offshore market, the centrality of market price information is gradually transferred from the non-deliverable forward market to the offshore market. It is expected that the offshore market will play the main role in the price discovery mechanism.
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    • References(21)
  • [1]
    代幼渝, 杨莹. 人民币境外NDF汇率、境内远期汇率与即期汇率的关系的实证研究[J]. 国际金融研究, 2007(10): 72-80.
    DAI Youyu, YANG Ying. Empirical research on the relationships of RMB onshore spot, forward and NDF markets[J]. Studies of International Finance, 2007(10): 72-80.
    [2]
    徐剑刚, 李治国, 张晓蓉. 人民币NDF与即期汇率的动态关联性研究 [J]. 财经研究, 2007(09): 61-68.
    XU Jiangang, LI Zhiguo, ZHANG Xiaorong. Research on dynamics of the RMB spot and NDF [J]. Journal of Finance and Economics, 2007(09): 61-68.
    [3]
    YAN Min, BA Shusong. Who does the pricing of forward markets belong to: An empirical research and policy inspiration [J]. Economic Science, 2010(01): 72-84.
    [4]
    贺晓博. 境外人民币NDF和境内人民币掉期之间关系的实证研究 [J]. 国际金融研究, 2009(06): 90-96.
    HE Xiaobo. Empirical research on the relationships of RMB offshore NDF and onshore swaps [J]. Studies of International Finance, 2009(6): 90-96.
    [5]
    李娜, 朱弘鑫. 在岸即期汇率市场与离岸CNH远期、NDF三者交易逻辑及价格发现的实证研究 [J]. 中国外资, 2013(8): 24-26.
    LI Na, ZHU Hongxin. Empirical research on price discovery between onshore spot, offshore forward and NDF markets [J]. Foreign Investment in China, 2013(8):24-26.
    [6]
    张喜玲. 离岸与在岸人民币汇率动态关联：基于CNH、CNY、DF和NDF市场的实证分析 [J]. 西南金融, 2014(02): 36-39.
    ZHANG Xiling. Dynamics in the onshore and offshore RMB exchange rate markets: Based on empirical research on CNH, CNY, DF and NDF [J]. Southwest Finance, 2014(02): 36-39.
    [7]
    COLAVECCHIO R, FUNKE M. Volatility transmissions between Renminbi and Asia-Pacific onshore and offshore U.S. dollar futures [J]. China Economic Review, 2008, 19(4): 635-648.
    [8]
    HE D, CHEUNG L, ZHANG W, et al. How would capital account liberalization affect Chinas capital flows and the renminbi real exchange rates? [J]. China & World Economy, 2012, 20(6): 29-54.
    [9]
    PARK J. Information flows between non-deliverable forward (NDF) and spot markets: Evidence from Korean currency [J]. Pacific-Basin Finance Journal, 2001, 9(4): 363-377.
    [10]
    WANG K L, FAWSON C, Chen M L, et al. Characterizing information flows among spot, deliverable forward and non-deliverable forward exchange rate markets: A cross-country comparison [J]. Pacific-Basin Finance Journal, 2014, 27: 115-137.
    [11]
    GU L, MCNELIS P D. Yen/Dollar volatility and Chinese fear of floating: Pressures from the NDF market [J]. Pacific-Basin Finance Journal, 2013, 22: 37-49.
    [12]
    WANG Xi, ZHENG Xuefeng. Development of information transduction between onshore and offshore forward markets [J]. Studies of International Finance, 2009(11): 45-54.
    [13]
    HASBROUCK J. One security, many markets: Determining the contributions to price discovery [J]. Journal of Finance, 1995, 50: 1 175-1 199.
    [14]
    EUN C S, SABHERWAL S. Cross-border listings and price discovery: Evidence from U.S.-listed Canadian stocks [J]. The Journal of Finance, 2003, 58(2): 549-576.
    [15]
    FIGUEROLA-FERRETTI I, GILBERT G L. Price discovery in the aluminum market [J]. The Journal of Futures Markets, 2005, 25(10): 967-98.
    [16]
    LUTKEPOHL H, POSKITT D S. Estimating orthogonal impulse responses via vector autoregressive models[J]. Econometric Theory, 1991, 7(4): 487-496.
    [17]
    CALLEN J L, LUKE M W, KWAN C C Y. Spot and forward exchange rates: A causality analysis [J]. Journal of Business Finance and Accounting, 1989, 16(l): 105-118.
    [18]
    HE Xiaobo, ZHANG Xiaomei. Empirical research on price discovery of RMB onshore and offshore exchange rate [J]. Studies of International Finance, 2012(6): 58-66.
    [19]
    伍戈, 裴诚. 境内外人民币汇率价格关系的定量研究[J]. 金融研究, 2012(09): 62-73.
    WU Ge, PEI Cheng. Quantitative research of onshore and offshore RMB exchange rate markets price relationships[J]. Journal of Financial Research, 2012(9): 62-73.
    [20]
    FUNKE M, GRONWALD M. The undisclosed renminbi basket: Are the markets telling us something about where the renminbi-US dollar exchange rate is going? [J]. The World Economy, 2008, 31(12): 1 581-1 598.
    [21]
    CHEUNG Y W, RIME D. The offshore renminbi exchange rate: Microstructure and links to the onshore market[J]. Journal of International Money and Finance, 2014, 49: 170-189.
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    [1]
    代幼渝, 杨莹. 人民币境外NDF汇率、境内远期汇率与即期汇率的关系的实证研究[J]. 国际金融研究, 2007(10): 72-80.
    DAI Youyu, YANG Ying. Empirical research on the relationships of RMB onshore spot, forward and NDF markets[J]. Studies of International Finance, 2007(10): 72-80.
    [2]
    徐剑刚, 李治国, 张晓蓉. 人民币NDF与即期汇率的动态关联性研究 [J]. 财经研究, 2007(09): 61-68.
    XU Jiangang, LI Zhiguo, ZHANG Xiaorong. Research on dynamics of the RMB spot and NDF [J]. Journal of Finance and Economics, 2007(09): 61-68.
    [3]
    YAN Min, BA Shusong. Who does the pricing of forward markets belong to: An empirical research and policy inspiration [J]. Economic Science, 2010(01): 72-84.
    [4]
    贺晓博. 境外人民币NDF和境内人民币掉期之间关系的实证研究 [J]. 国际金融研究, 2009(06): 90-96.
    HE Xiaobo. Empirical research on the relationships of RMB offshore NDF and onshore swaps [J]. Studies of International Finance, 2009(6): 90-96.
    [5]
    李娜, 朱弘鑫. 在岸即期汇率市场与离岸CNH远期、NDF三者交易逻辑及价格发现的实证研究 [J]. 中国外资, 2013(8): 24-26.
    LI Na, ZHU Hongxin. Empirical research on price discovery between onshore spot, offshore forward and NDF markets [J]. Foreign Investment in China, 2013(8):24-26.
    [6]
    张喜玲. 离岸与在岸人民币汇率动态关联：基于CNH、CNY、DF和NDF市场的实证分析 [J]. 西南金融, 2014(02): 36-39.
    ZHANG Xiling. Dynamics in the onshore and offshore RMB exchange rate markets: Based on empirical research on CNH, CNY, DF and NDF [J]. Southwest Finance, 2014(02): 36-39.
    [7]
    COLAVECCHIO R, FUNKE M. Volatility transmissions between Renminbi and Asia-Pacific onshore and offshore U.S. dollar futures [J]. China Economic Review, 2008, 19(4): 635-648.
    [8]
    HE D, CHEUNG L, ZHANG W, et al. How would capital account liberalization affect Chinas capital flows and the renminbi real exchange rates? [J]. China & World Economy, 2012, 20(6): 29-54.
    [9]
    PARK J. Information flows between non-deliverable forward (NDF) and spot markets: Evidence from Korean currency [J]. Pacific-Basin Finance Journal, 2001, 9(4): 363-377.
    [10]
    WANG K L, FAWSON C, Chen M L, et al. Characterizing information flows among spot, deliverable forward and non-deliverable forward exchange rate markets: A cross-country comparison [J]. Pacific-Basin Finance Journal, 2014, 27: 115-137.
    [11]
    GU L, MCNELIS P D. Yen/Dollar volatility and Chinese fear of floating: Pressures from the NDF market [J]. Pacific-Basin Finance Journal, 2013, 22: 37-49.
    [12]
    WANG Xi, ZHENG Xuefeng. Development of information transduction between onshore and offshore forward markets [J]. Studies of International Finance, 2009(11): 45-54.
    [13]
    HASBROUCK J. One security, many markets: Determining the contributions to price discovery [J]. Journal of Finance, 1995, 50: 1 175-1 199.
    [14]
    EUN C S, SABHERWAL S. Cross-border listings and price discovery: Evidence from U.S.-listed Canadian stocks [J]. The Journal of Finance, 2003, 58(2): 549-576.
    [15]
    FIGUEROLA-FERRETTI I, GILBERT G L. Price discovery in the aluminum market [J]. The Journal of Futures Markets, 2005, 25(10): 967-98.
    [16]
    LUTKEPOHL H, POSKITT D S. Estimating orthogonal impulse responses via vector autoregressive models[J]. Econometric Theory, 1991, 7(4): 487-496.
    [17]
    CALLEN J L, LUKE M W, KWAN C C Y. Spot and forward exchange rates: A causality analysis [J]. Journal of Business Finance and Accounting, 1989, 16(l): 105-118.
    [18]
    HE Xiaobo, ZHANG Xiaomei. Empirical research on price discovery of RMB onshore and offshore exchange rate [J]. Studies of International Finance, 2012(6): 58-66.
    [19]
    伍戈, 裴诚. 境内外人民币汇率价格关系的定量研究[J]. 金融研究, 2012(09): 62-73.
    WU Ge, PEI Cheng. Quantitative research of onshore and offshore RMB exchange rate markets price relationships[J]. Journal of Financial Research, 2012(9): 62-73.
    [20]
    FUNKE M, GRONWALD M. The undisclosed renminbi basket: Are the markets telling us something about where the renminbi-US dollar exchange rate is going? [J]. The World Economy, 2008, 31(12): 1 581-1 598.
    [21]
    CHEUNG Y W, RIME D. The offshore renminbi exchange rate: Microstructure and links to the onshore market[J]. Journal of International Money and Finance, 2014, 49: 170-189.
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