Research On The Risk Infection Between The Yield Volatility In The Offshore And Domestic Foreign Exchange Market Of China

With the deepening of economic globalization, the connection between the different economies is much stronger. Finance, as an important part of economic, is also faced with the trend of financial globalization. Look around the world, offshore financial market played an important role in the formation and development history of almost all international monetary. In recent years, RMB offshore market has become a hot topic in finance. The Hong Kong RMB offshore financial market has begun to take shape. But the academic community are lack of related research studying in the mechanism of risk transmission between offshore financial market and domestic financial market. Related research is urgently needed to provide theoretical support and policy suggestions for the early development of offshore market. So this article wanted to study the yield fluctuation risk transmission mechanism between the offshore and domestic foreign exchange market to provide theoretical support for the development of offshore financial market in the process of RMB internationalization.Firstly, this article combed related theory and research on the concept of offshore financial market, the development model, the main currencies in the trade, the potential risks of offshore financial market and the main risk factors get clear. The article theoretically analyzed the infection of risk and the potential channels, for instance, interest parity, international payments, financial innovation, currency crisis, etc. of risk infection between offshore market and domestic market. Secondly. development background, development course and main characteristics of Hong Kong’s RMB offshore market are analyzed. Thirdly, with complete data, after using a series of statistical analysis methods to preprocess the data, offshore financial market in Hong Kong and domestic financial market as the research object vector autoregressive model was built to analyze the direction and degree of yield fluctuation impact between the two markets. Finally, GARCH-Granger overall risk Contagion model and Contagion-MGARCH time-varying model are built for the empirical analysis on mechanism of the risk transmission between the two markets.Through a series of empirical analysis, related conclusion on the risk contagion effects between the offshore and domestic foreign exchange market. Firstly, in different stages, there is a significant difference on the return volatility impact effect between the offshore and domestic foreign exchange market and enormous difference exists on the direction and degree of impact. The result proved that it is correct for this article to analyze the volatility risk between the offshore and foreign exchange market in stages; Secondly, from the view of time-varying and dynamic yield, in no matter which stage there is a significant difference on the risk transmission path and the content between the two foreign exchange markets. However, contagion effects from the risk of foreign exchange market in China offshore foreign exchange market are more significant. Although there are certain dynamic changes in different stages, the contagion effect objectively exists.