Price-leading Relationship And Pricing Power Allocation Between Onshore And Offshore RMB Market

The pilot RMB settlement in cross-border trade started to promote the internationalization of RMB in July 2009 after the financial crisis.The offshore RMB business had a fast development.Meanwhile,Hong Kong RMB offshore market in general has developed rapidly and formed a certain scale.In 2011,Hong Kong Treasury Markets Association officially launched the CNH spot exchange rate fixing of RMB against the US dollar which led to the formation of a unified offshore RMB exchange rate pricing mechanism.The Hong Kong offshore RMB spot foreign exchange market(CNH market)and the Hong Kong deliverable forward foreign exchange market(CNHDF market)have accelerated their growth.In addition,since the emergence of the RMB non-deliverable forward foreign exchange market(NDF market)in 1996,it has experienced an enormous upswing.In the peak period from 2008 to 2009,the daily trading volume of NDF market is up to about 10 billion US dollars.Along with the continuous advancement of the RMB internationalization,the exchange rate feedback mechanism between the onshore and the offshore market is initially formed.It broke the linkage mechanism between the RMB onshore market and NDF market and established the link among onshore RMB market,Hong Kong offshore RMB market and NDF market.Then after the establishment of the Hong Kong offshore RMB market,the price-leading relationship of the RMB exchange rate among these three markets and the pricing power have aroused the concern of regulators and investors.Based on the interest rate parity theory and the efficient market hypothesis,this thesis summarizes the existing research literature.In the empirical analysis,the data are divided into four stages.By using some fundamental methods like Unit Root test,Granger causality test and VAR model,we analyze the linear overflow effect among five variables of three markets.The study found that from January 2,2008 to August 23,2010,NDF market is the RMB price information center which guides the onshore spot and forward market.After August 23,2010,the RMB price information center has partly transferred from the NDF market part of the Hong Kong offshore RMB deliverable forward exchange market.The links among different RMB foreign exchange markets become more closely related.At the end of this thesis,based on the analysis of the empirical results,this thesis puts forward some policy suggestions for further improving the marketed RMB exchange rate mechanism.