Empirical Study On Price Dynamic Interrelation Of RMB Domestic Forward Exchange Rate, NDF And Spot Rate

Price discovery is an important function of the financial derivatives market, is a measure mark of the development of financial derivatives. The impact’s degree of RMB spot foreign exchange market and forward foreign exchange market can reflect the efficiency of the foreign exchange market, that is, if the foreign exchange market has more validity, then the price discovery function well. Since Hong Kong’s RMB foreign exchange derivatives market is growing rapidly and trading activity and its development have more impact on the domestic foreign exchange market, so the RMB foreign exchange market price discovery function is the topic of academics、foreign exchange market participants and policy makers,so it has large significance to study it.In order to analysis the interaction of RMB spot rate, forward rate, and domestic offshore RMB NDF (non-deliverable forward rate) and the change of price discovery function after significant event occurring on the foreign exchange market, This article summary the research of RMB spot market and forward markets. This paper taken the data’s nonstationarity and cointegration into account based on previous studies. The paper also shows the long-term and short-term relationship of three exchange rate market by using the result of ECM Granger causality test. At the same time, we establish a volatility spillover model within the influence three variable based on EGARCH model. We can also analysis the volatility spillover effects of three exchange time series variables, then, we can illustrate price discovery function of RMB exchange market. This paper has an innovative way to analysis the different stages impact of NDF、domestic spot and forward market. This paper also show the information transfer and volatility spillover effects of one month%three months、six months and one-year’s relationship of domestic spot、forward market and NDF market by analyzing Granger causality、co-integration、VAR models、volatility spillovers.Overall, the empirical results indicate the event occurring on the exchange market have a real impact on the long-term equilibrium relationship、market relevance、price discovery function、Granger causality and mutual volatility spillover effects of RMB spot market and forward markets. We also find the offshore RMB NDF market will have an impact on China’s RMB exchange rate market, therefore, for the Chinese government, China should gradually establish and improve the foreign exchange market, and promote the completion of the reform of the RMB exchange market, then we can push on the defense of the international financial markets, and gradually mastered the RMB exchange rate pricing function. In addition, we can enhancing international financial cooperation by releasing restrictions on domestic investors to enter the offshore RMB markets、establishing the price discovering channel of the offshore market and the domestic exchange market、promoting the rapid development of RMB internationalization and widening breadth of worldwide offshore RMB forward market transactions. The RMB foreign exchange market can have rapid development at last...