Does offshore NDF market influence onshore forex market? Evidence from India

Harendra Behera, Rajiv Ranjan and Sajjid Chinoy

Journal of Futures Markets, 2022, vol. 42, issue 6, 1167-1185

Abstract: The paper uses a vector error correction model–multivariate generalized autoregressive conditional heteroskedasticity approach to examine the interrelationship between onshore and offshore nondeliverable forward (NDF) markets for the Indian Rupee. The empirical results suggest a stable and bidirectional long‐run relationship between onshore and offshore markets. The subperiod analysis implies that there are unidirectional mean spillovers from NDF markets to onshore spot, forward, and futures markets during the post‐taper tantrum period. Regarding “volatility spillover,” the analysis indicates a unidirectional volatility spillover from spot and forward segments to NDF market in normal circumstances, which turns bidirectional during times of depreciation pressure on the rupee.

Date: 2022
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