Summary:
As the United States is still the world’s largest economy, many foreign exchange traders believe that the dollar index is an important factor affecting the short-term volatility of RMB exchange rate. The power of the dollar index has a great impact on the stability of global financial markets. Since the 1990s, multiple financial crises have been accompanied by the rapid rise of dollar index. The dollar index tendency will affect the market participants’ expectation of capital flow, thus affecting traders’ choice of asset portfolio. However, in comparison with the dollar index, the dollar and carry factor can summarize and reflect variation among global currencies better. In recent years, China has gradually developed offshore RMB markets and liberalized exchange rate determination of the onshore RMB market. While the onshore RMB market faces the restrictions of the People’s Bank of China, the offshore markets can reflect market sentiment and expectations more sensitively. The rapid development of the offshore market also provides a new perspective for studying changes in the RMB exchange rate. After the 8·11 exchange rate reform in 2015, the trend of exchange rates in onshore and offshore markets tends similar obviously. Under the turbulent global macro environment, studying the linkage mechanism between the onshore and offshore RMB exchange rate can provide important reference and theoretical basis in for further opening of China’s financial market, while promoting the internationalization of RMB and preventing financial risks. This paper analyzes the co-movements of onshore and offshore RMB exchange rates. We study the mean and volatility spillover effects of the exchange rates with global risk factors by using VECM-GARCH-BEKK model. By doing so, we can analyze the correlation features of the two markets in terms of mean and volatility while controlling the common share of global systematic variation. The sample period of this paper is from January 1, 2012 to the end of 2018, covering the 8·11 exchange rate reform. The exchange rate reform is used as the breakpoint for further analysis of the impact of the dollar and carry factor on the co-movements between onshore and offshore RMB exchange rates. The onshore data are from the China Foreign Exchange Trade Center (CFETS), while the offshore data are from Bloomberg. In terms of daily frequency, there is a long-term equilibrium relationship between the onshore RMB and the offshore RMB exchange rates. Before the 8·11 exchange rate reform, in response to increasing spread,the more market-based offshore exchange rate adjusted spontaneously to rebuild the equilibrium relationship between two markets. However, after the 8·11 exchange rate reform, once the spread between two markets becomes larger, both markets actively adjust the price level to reach equilibrium. This shows that the marketization of the onshore RMB market has been increased significantly after the exchange reform. The impact of the dollar factor on the onshore RMB exchange rate is always significant. The carry factor before the reform was not significant in explaining the onshore exchange rate, however it becomes significant after the reform. The joint test shows that before the 8·11 reform, there is little evidence of a spillover effect between two markets. After the 8·11 reform, the onshore-market power to transmit volatility to the offshore market improves significantly,and the degree of integration between the two markets is also greatly improved. When the dollar factor and carry factor are under control, the ARCH spillover effect from the offshore market to the onshore market and the GARCH spillover effect from the onshore market to the offshore market disappear, which indicate that the dollar factor and carry factor absorb the shock transmission from the offshore to the onshore market and volatility transmission from the onshore to the offshore market. The following suggestions are thus put forward based on the findings of this papar. First, to reduce the volatility risks of the exchange rate, more RMB derivative products with lower entry barriers should be devised as soon as possible. Second, to increase the number of investors, regulators should consider relaxing the principle of real demand requirement. Finally, more consideration of the impact of global risks should be given by the regulatory authorities in managing the exchange rates.
丁剑平, 胡昊, 叶伟. 在岸与离岸人民币汇率动态研究——基于美元因素和套利因素的视角[J]. 金融研究, 2020, 480(6): 78-95.
DING Jianping, HU Hao, YE Wei. Dynamic Study of Onshore and Offshore RMB Exchange Rates:From the Perspective of Dollar and Carry Factor. Journal of Financial Research, 2020, 480(6): 78-95.
Cox J. C., Ingersoll Jr J. E.and Ross S. A. 1985. “A Theory of the Term Structure of Interest Rates”, Econometrica, 53(2): 385～407.
[16]
Cheung Y. W. and Rime D.. 2014. “The Offshore Renminbi Exchange Rate: Microstructure and Links to the Onshore Market”, Journal of International Money and Finance, 49:170～189.
[17]
Craig R., Hua C., Ng P. K.and Yuen R.. 2014. “Development of the Renminbi Market in Hong Kong SAR: Assessing Onshore-Offshore Market Integration”, Imf Working Papers, 13(268).
[18]
Engle R. F. and Kroner K. F. 1995. “Multivariate Simultaneous Generalized ARCH”, Econometric theory, 11(1):122～150.
[19]
Evans MDD and Lyons RK. 2001.“Why Order Flow Explains Exchange Rates”, Manuscrip:1～31
[20]
Funke M., Shu C., Cheng X.and Eraslan S.. 2015. “Assessing the Cnh-cny Pricing Differential: Role of Fundamentals, Contagion and Policy”, Journal of International Money and Finance, 59:245～262
[21]
Lee K. 2018. “Systematic Exchange Rate Variation: Where does the Dollar Factor Come From？”, International Review of Economics & Finance, 56: 288～307.
[22]
Verdelhan Adrien. 2018. “The Share of Systematic Variation in Bilateral Exchange Rates”, Journal of Finance 73(1):375～418.
