Research On Dependence Structure And Risk Spillover Between RMB NDF Market And TWD NDF Market

With the economic development of the mainland and Taiwan in recent years,and the increasingly close economic and trade cooperation between each other,especially the launch of the "three links" across the Taiwan straits and the cross-strait financial supervision memorandum of understanding (MOU) to take effect, cross-strait economic and trade exchanges of the mainland and Taiwan becomes more closely,the linkage between finance markets is becoming more and more stronger.RMB NDF market and TWD NDF market is an important part of finance market,The RMB NDF exchange rate and TWD NDF exchange rate can better reflect future trend of RMB exchange rate and TWD exchange rate in the international financial market. Studying the change of dependence structure and risk spillover between two markets,we can grasp the dependence structure between two markets,promote cross-strait financial integration,improve risk prevention capabilities of the foreign exchange market across the Taiwan straits,especially it has important practical significance to promote the integration between the onshore forwards market and the offshore forward market.First,this article summarizes relevant theory of RMB NDF market and TWD NDF market and relevant theory of Copula,combining with the relevant theory of forward exchange rate,correlation and risk spillover channels between markets,and then selects exchange rates of the dollar against the RMB period for one-year NDF,and exchange rates of the dollar against the TWD period for one-year NDF to represent the RMB NDF market and TWD NDF market, and then data can be divided into three stages,including before the crisis, crisis and after the crisis,based on idea of Copula constructing,this article models bivariate normal copula model and SJC-Copula model to research correlations and the change of the tail correlation in different periods between the RMB NDF market and TWD NDF market,and then the key analysis is risk spillover of TWD NDF market to the RMB NDF market by the method of CoVaR.The empirical results show that the RMB NDF market and TWD NDF market is obviously positive correlation in the early stage of the financial crisis and the financial crisis,but shows a negative correlation after financial crisis especially since 2011 between two market,which is the reason of the expected appreciation of RMB,the correlation degree of lower tail dependence is significantly enhanced,and exists obvious spillover effect in the three time periods especially the strongest spillover effects during the financial crisis.Finally, the article will combine research conclusion with RMB NDF market development situation,give suggestions on promoting the better development of RMB NDF market.