Research On Dynamic Interrelation In RMB Future And Spot Markets

Exchange rate is an important issue in the open economy.The exchange rate of Chinese RMB has become the focus of the global politics,economy and academic. Since the reform of our exchange rate mechanism,the marketing of RMB exchange rate has deepened,and the fluctuation of both sides has become severe.The increasing exchange risk is accompanied by the increasing demand for the currency derivatives of RMB.However the development of domestic currency derivatives market can't meet the actual market's need.As a contrast,the off-shore RMB derivatives market is developing fast,and has an influence domestic RMB exchange rate.and also triggered a fierce debate about the influence.Using the quantitative analysis method,this paper studied the dynamic interrelation between RMB currency futures market,which was created by Chicago Mercantile Exchange of US on August 28^th.2006.and its spot market.First.the paper went deep into the current situation of the RMB currency future market and the spot market.Then the paper adopted the Hamao model and the MA(1)-DCC(1.1) -MVGARCH model to empirically analyze the spillover effect and dynamic correlation between the two markets,using the related daily data of CME currency future price and RMB per dollar midpoint rate of spot market with the sample period extending from 08/01/2007 to 01/16/2009.Conclusions are as follows:(1).Relating to the mean spillover effect,the spot price leads the future price and is the dominant market in the price discovery:(2).Concerning the volatility effect,the introduction of RMB currency future didn't increase the volatility of the spot market.(3).As for the dynamic conditional correlations,the correlation between them is relatively low and highly volatile.But the correlation is tending to be stronger,because in period 2 it is stronger than that in period 1;(4) Compared to the short-maturity future contracts,the dynamic interrelation between the spot and long-maturity futures is weaker.Generally,the spot market is more powerful in leading market price than the future market.However,as the development of the RMB future market and the improvement of the marketing of RMB,the interrelation between them tends to be stronger.Finally,on the basis of studying the trade mechanism of RMB currency futures introduced by CME and the failure of domestic currency futures,the paper advanced some recommendations on the improvement of the domestic currency derivatives market and discussed some problems about rebuilding the currency future market.