Empirical Analysis Of Price Discovery Among Onshore CNY Spot Rate Market CNH DF Market And NDF Market

The FX rate measures the relative value between two currencies, and is a factor of vital importance in economy. As the establishment and booming of HongKong offshore RMB market, together with the existent NDF and onshore domestic RMB spot exchange rate, these three markets have constituted special RMB exchange rate pattern called "one country, two systems, and three curves", thus making the price discovery and mutual influence among these markets especially worthy of exploring. This article measures the price discovery between CNY spot rate market and NDF market, as well as the NDF market with the CNH DF market using the empirical analysis such as cointegration,Vector Error Correction Model(VECM) and the Information Share model(IS).The empirical results show that the contribution of NDF market in price discovery is reducing, especially after the rising of HongKong offshore market, while the onshore spot market begins taking the dominate role in price discovery. The non-deliverable forwards with different tenors show different cointegration relations with onshore spot rate, indicates the changing market players from speculators to arbitrageurs in NDF market.In the price discovery analysis between NDF and CNH-DF market, the non-deliverable forwards with various tenors all demonstrate stronger price discovery contribution than deliverable forwards in CNH market. This phenomenon may result from the liquidity difference in these two markets. As the increasing transferring from NDF to CNH-DF, as well as the favorable factors in raising HongKong offshore RMB market efficiency continue existing, it is reasonable to predict the increasing price discovery of CNH market in the foreseeable future.