Onshore spot and offshore forward markets for RMB: Evidence from the “8.11” exchange rate regime reform

Xue Li, Yanghui Liu, Hanxu Li and Jie Li ()

China Economic Review, 2021, vol. 67, issue C

Abstract: This paper investigates the dynamic relationship between the onshore spot market and offshore forward market for Chinese currency around the period of China's “8.11” exchange rate regime reform, one of the most important market-oriented reforms implemented on August 11, 2015. We compare return and volatility spillover effects between the two markets before and after the “8.11” reform. The empirical evidence shows that a remarkable change has occurred in both the return and volatility spillovers. Before the reform, return and volatility spillovers exist from the offshore forward market to the onshore spot market. After the reform, however, we observe an obvious reverse in the direction and an increase in the strength of the return and volatility spillover effects. These findings suggest the existence of cross-market information flows, a change in the direction and a strengthening of the dynamic relationship after the reform. We argue that the “8.11” reform serves as a milestone reflecting long-term underlying forces that increase the relative importance of the onshore market.

Keywords: Exchange rate regime reform; RMB; Information flows; Spillover effects (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:67:y:2021:i:c:s1043951x21000353

DOI: 10.1016/j.chieco.2021.101617

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