What Factors Affect the RMB Carry Trade Return for Sustainability? An Empirical Analysis by Using an ARDL Model

Ziyun Zhang and Sen Guo
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Ziyun Zhang: Business School, Beijing Normal University(BNU), Beijing 100875, China
Sen Guo: School of Economics and Management, North China Electric Power University, Beijing 102206, China

Sustainability, 2021, vol. 13, issue 24, 1-19

Abstract: With the internationalization of RMB and the openness of China’s capital account, the amount of foreign institutions investing in China has increased significantly. Based on China’s daily data from January 2007 to September 2021, this study investigated the factors that affect the RMB carry-trade return for sustainability. By comparing the results of the carry return before and after the foreign-exchange reform on 11 August 2015, this study found that the RMB carry return has become more traceable after the exchange-rate reform. Meanwhile, the model fitting degree of explaining the RMB carry return was higher, and there were fewer missing variables. Therefore, this study found that after the RMB-exchange-rate mechanism became more market oriented, the RMB carry return became more reasonable, and the carry trade can play a better role in foreign-exchange pricing. Meanwhile, after using the RMB non-deliverable forwards (NDF) to construct a carry-trade position to perform the robustness test, such results were consistent. With different results before and after the exchange-rate reform, this study can provide references for policy makers and investors for sustainable development.

Keywords: RMB carry return; crash risk; uncovered interest party; ARDL (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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