Study On Time-Varying Correlation And Risk Spillover Between Onshore And Offshore Markets In The Background Of RMB Internationalization

Since 2009,the internationalisation of the RMB in China has been developing rapidly.In particular,the RMB offshore market,represented by the Hong Kong offshore financial market,has played an important role in the internationalisation of the RMB,and the link between the offshore and onshore markets has become increasingly close.While the internationalisation of the RMB has enhanced the linkages between the two markets,it has also increased the risk spillover between the markets.Coupled with non-economic factors such as the frequent occurrence of extreme events and the intensification of geopolitical conflicts,there are both challenges and opportunities for the future of RMB internationalisation.Against the backdrop of a complex and volatile external environment and internal exchange rate reform,an analysis of the linkages and changes in risk spillovers between the offshore and onshore markets of the RMB can provide advice on RMB foreign exchange reform and better promote the internationalisation of the RMB.This article first introduces the current development of RMB internationalisation,then compares the existing literature on linkages and risk spillovers between the offshore and onshore markets,summarises the transmission pathways between the offshore and onshore markets of RMB,and collates the current development of the offshore RMB markets in Hong Kong,Singapore and London.In the first part of the empirical evidence,the daily median exchange rates of CN Y,CNH,NDF 1Y and DF 1Y for the period from 2014.11.7 to 2022.12.22 are selected,and the logarithmic yield series are calculated.On the basis of the smoothness test and the ARCH effect test passed,the best GARCH model for each yield series is selected by combining indicators such as AIC,BIC and the great likelihood estimator and The joint distribution T-Copula function with the best fit between two markets.A GARCH-T-Copula-CoVaR model is constructed to calculate the dynamic correlation coefficients between markets,the extreme risk VaR and the risk spillover%CoVaR.The empirical results show that RMB exchange rate reform policies increase the correlation between the onshore and offshore RMB foreign exchange markets morethan extreme events and geopolitical conflicts,and that the effect of foreign exchange reforms is longer,especially "8-11 exchange rate reform".During the study sample period,the DF market was at the centre of information transmission and risk transmission and played a price guidance role,while the NDF market played an increasingly weaker guidance role.Overall,the risk spillover effect in the RMB offshore and forward markets is significantly stronger than that in the onshore spot FX market.In the second part of the empirical evidence,the daily closing prices of CNY and CNH for the period from 2012.9.18 to 2022.12.22.as well as RMB exchange rate futures on the Hong Kong Stock Exchange(UCA1),the Chicago Mercantile Exchange(CHY1).the Singapore Exchange(XUC1)and the Taiwan Futures Exchange(RHA1)are selected Closing price data,log-return series are calculated and a GARCH-T-Copula-CoVaR model is constructed as in the first part of the empirical evidence for the empirical study.The empirical results show that the correlation between the RMB onshore and offshore FX and futures markets is higher than that between the FX markets,that the impact of RMB FX reforms.wars and extreme events on the extreme risk in the futures market is greater than that in the RMB FX market,and that the risk spillover effect in the RMB exchange rate futures market is significantly stronger than that in the RMB FX markets CNH and CNY.Based on the article’s findings,the following four policy recommendations are proposed:(1)continuously promote the steady and coordinated development of offshore and onshore financial markets;(2)continuously promote the construction and development of the domestic offshore market;(3)support various foreign exchange management reforms;and(4)enrich RMB foreign exchange products and promote the development of the derivatives market.