Research On Information Flow Among Rmb Spot, Onshore Forward And Offshore Ndf Markets

With the rapid development of economy and the continuous upgrading of the international status, RMB exchange rate has become a hot issue, which attracts academia attention. On July21,2005, China started the RMB exchange rate formation mechanism reform and began to implement the managed floating exchange rate system, which based on market supply and demand, with reference toa basket of currencies. On June19,2010, the central bank restarted the exchange rate system reform. After the reform, the RMB exchange rate pricing mechanism became more flexible, which increased volatility notably and stimulated market participants’ hedge demand. In this context, it is an urgent requirement to establish an effective foreign exchange forward market.The existing RMB forward include onshore forward market (including forward foreign exchange settlement and sale and interbank forward market) and offshore NDF market. Recent years, as the strengthen of international integration of financial markets, the relationship among RMB spot market, onshore forward and offshore NDF is becoming closer more and more. The dominant right and pricing power between onshore and offshore markets is increasingly becoming the focus problem of academic research and debate. Therefore, it is of great theoretical and practical significance to study the information flow mechanism among RMB spot, onshore forward and offshore NDF markets and quantify their interaction effect.Firstly, this paper introduces the development history and current situation of RMB forward market, interprets the corresponding theory. Then, the paper analyses the information flow mechanism among RMB foreign exchange markets and influencing factors. On the basis of theoretical analysis, the author carries the empirical study from two aspects of mean spillover effect and volatility spillover effect, used by Granger causality test and DCC-MGARCH model. The results of empirical study suggest that a series of reform in foreign exchange market make the positive influence on RMB onshore forward market. The unidirectional conduction of information from offshore market into onshore market converts into the two-way impact between foreign exchange markets. There is a trendy that onshore forward market guides the RMB exchange rate pricing. However, it takes onshore forward market much time to adjust price as response of external information changes. Besides, offshore NDF market has significant influence on onshore markets. Finally, the paper discuses how to deal with the relationship between onshore forward and offshore NDF market and how to deepen RMB onshore forward market on the background of foreign exchange control. Together with the NDF experience of Korea and Australia as reference, the author proposes currently developing RMB onshore NDF market may be a feasible path to optimize our domestic foreign exchange forward market.