Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

A New Paradigm for International BusinessPrice Discovery and Dynamic Correlations: The Case of the Chinese Renminbi Markets

A New Paradigm for International Business: Price Discovery and Dynamic Correlations: The Case of... [The Chinese renminbi (RMB) currency system has undergone several major developments in the past two decades, including the adoption of a managed-floating system since July 2005, the expansion of an offshore RMB non-deliverable forward (NDF) market, and the relaxation of certain regulatory controls to promote the increased use of the RMB in the region. These developments have sparked intense debate on the potential of RMB internationalization and its pros and cons. In view of these developments, this paper provides a comprehensive analysis of the dynamics of the RMB in both the spot and NDF markets since 2005 by examining the role and significance of the RMB NDF by quantifying the contributions of the RMB spot and NDF rates in the price discovery process and the volatility dynamics of the RMB markets by adopting two different frameworks with multivariate Student’s t-distribution and time-varying conditional correlations. The results indicate that asymmetric volatility effects are significant for several NDF contract maturities and the spot-NDF correlations are significantly time-varying. Moreover, shocks to the volatility levels are highly persistent. Causality tests on the spot and NDF volatilities further suggest that the NDF markets impact the future fluctuations of the spot market, but the spot market does not have predictive power for the volatility of the NDF markets.] http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png

A New Paradigm for International BusinessPrice Discovery and Dynamic Correlations: The Case of the Chinese Renminbi Markets

Part of the Springer Proceedings in Business and Economics Book Series
Editors: Djajadikerta, Hadrian Geri; Zhang, Zhaoyong
Ho, Kin-Yip; Shi, Yanlin; Zhang, Zhaoyong
Springer Journals — Mar 12, 2015
Download PDF
15 pages

Loading next page...
 
/lp/springer-journals/a-new-paradigm-for-international-business-price-discovery-and-dynamic-u7KuGktiRp
Publisher
Springer Singapore
Copyright
© Springer Science+Business Media Singapore 2015
ISBN
978-981-287-498-6
Pages
97 –111
DOI
10.1007/978-981-287-499-3_5
Publisher site
See Chapter on Publisher Site

Abstract

[The Chinese renminbi (RMB) currency system has undergone several major developments in the past two decades, including the adoption of a managed-floating system since July 2005, the expansion of an offshore RMB non-deliverable forward (NDF) market, and the relaxation of certain regulatory controls to promote the increased use of the RMB in the region. These developments have sparked intense debate on the potential of RMB internationalization and its pros and cons. In view of these developments, this paper provides a comprehensive analysis of the dynamics of the RMB in both the spot and NDF markets since 2005 by examining the role and significance of the RMB NDF by quantifying the contributions of the RMB spot and NDF rates in the price discovery process and the volatility dynamics of the RMB markets by adopting two different frameworks with multivariate Student’s t-distribution and time-varying conditional correlations. The results indicate that asymmetric volatility effects are significant for several NDF contract maturities and the spot-NDF correlations are significantly time-varying. Moreover, shocks to the volatility levels are highly persistent. Causality tests on the spot and NDF volatilities further suggest that the NDF markets impact the future fluctuations of the spot market, but the spot market does not have predictive power for the volatility of the NDF markets.]

Published: Mar 12, 2015

Keywords: Price discovery; Dynamic correlations; Chinese renminbi

There are no references for this article.