Empirical Research On Price Discovery In The Onshore And Offshore RMB Foreign Exchange Markets From The View Of Development

In August 11.2015. the tenth anniversary of the RMB exchange rate reform, the People’s Bank of China announced to improve the yuan-dollar exchange rate quotation. Although there was a short-term devaluation of RMB after this event,the exchange rate regime became more market-oriented and more flexible. To better understand the significance of the exchange rate reform,we need know first how the price of onshore and offshore currency forwards markets (CNH) is developing, with the gradual deepening of the reform decade, which also becomes worth researching in the RMB internationalization process.New model and method was studied to reasearch onshore and offshore currency forwards markets in seven periods, which was divided by significant policy change. Firstly, based on Bayesian multivariate GARCH models with dynamic correlations (BayesDccGarch) and asymmetric error distributions, which can model both skewess and heavy tails, we set the conditional mean equation, conditional variance equation and conditional covariance eqaution to analysis respectively return spillover effect, volatility spillover effect and dynamic correlations between onshore and offshore currency forwards markets. We found that NDF has been at the center of information transmission before the birth of CNH markets, who break the original stable relationship between the three major markets and become the hub of NDF market and onshore markets later. But when CNH markets gradually matured, its influence on the domestic market return stable.Secondly, price discovery pattern between the various markets was found based on cointegration, vector error correction model and information share model, which indicates the change in the deepening of the reform decade. Study showed that the price discovery contribution of NDF market gradually weakened over time, when onshore spot and offshore forward market were contrary. The centrality of market price information tranferred from NDF to offshore market, which confirms the result of first part and give us reason to believe that price discovery of CNH market will be more effective.