Research On The Heterogeneity And Formation Mechanism Of RMB Exchange Rate Expectation

Since the reform of the RMB exchange rate formation mechanism restarted in June 2010,the RMB exchange rate has experienced a turning point from the appreciation cycle to the depreciation cycle.The exchange rate expectation of the main financial institutions also experienced a cyclical turn like the spot exchange rate.The change of exchange rate expectation not only drives sharp fluctuation of spot exchange rate,but also causes drastic changes in the trading behavior of foreign exchange market entities such as financial institutions,enterprises and residents.So the study of the exchange rate expectation formation mechanism can determine whether there is a heterogeneous exchange rate expectation in the foreign exchange market,and figure out the factors that affect the exchange rate expectation.As a result,the central bank could implement the exchange rate expectation management more effectively.Based on the theory of heterogeneous exchange rate expectation formation mechanism,this article uses the Bloomberg data from the second quarter of 2010 to the second quarter of 2017 to investigate the Irrationality,heterogeneity and formation mechanism of the RMB exchange rate expectation.In this paper,the unbiased and orthogonal criteria are used to verify the exchange rate expectation irrationality.Variance coefficient and mean square error chart could test the expected distribution of RMB exchange rate,so as to judge the heterogeneity and discreteness of the exchange rate expectation.Further,the application of the exchange rate expectation formation model including the fundamental,arbitrage and technical rules,models with variable coefficient and constant coefficient are used to judge the specific trading rules of financial institutions.The conclusions are as follows:First,exchange rate expectations are irrational,unbiased and orthogonal.The exchange rate expectations are heterogeneous.Second,the result of the constant coefficient model of the exchange rate expectation formation mechanism shows that the financial institutions will use the fundamental rules,the technical rules and the arbitrage rules to carry out the exchange rate expectation.Third,the results of the variable coefficient model show that the financial institutions have obtained the heterogeneous exchange rate formation mechanism by weighting the prediction rules differently.In the short run,there are many institutional individuals using fundamental analysis method,but using the technology analysis method more in the long term.The proportion of the fundamental analysis method gradually reduces from short to long term.Arbitrage traders account for a large proportion in the long run and short term.The empirical results of this paper bring some enlightenments to the exchange rate expectation management for the central bank.In the short term,many financial institutions follow the technical rules.When the foreign exchange market fluctuates,the central bank needs to intervene the market and suppress noise trading.Therefore,judging the characteristics and formation of exchange rate expectation from the micro perspective has become the core issue of the academic circle and government institutions.The central bank can implement the exchange rate expectation management and maintain the stabilization of foreign exchange market from the conclusions above.