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Yen/Dollar volatility and Chinese fear of floating: Pressures from the NDF market

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  • Gu, Li
  • McNelis, Paul D.

Abstract

This paper examines financial market data to assess the likelihood of Renminbi appreciation and its implications for Chinese financial markets, given the continuing volatility of the exchange rate between the US Dollar and the Japanese Yen. Using VAR and Bayesian VAR estimation, we find that the 3-month Non-deliverable Forward premia are a key series which link Yen/Dollar volatility to financial market movements in China through speculative pressure. By contrast, the NDF market for the Korean Won, based on more flexible spot exchange market and open access by domestic banks, plays little or no role linking Yen/Dollar to domestic currency or financial markets in Korea.

Suggested Citation

  • Gu, Li & McNelis, Paul D., 2013. "Yen/Dollar volatility and Chinese fear of floating: Pressures from the NDF market," Pacific-Basin Finance Journal, Elsevier, vol. 22(C), pages 37-49.
    • Handle: RePEc:eee:pacfin:v:22:y:2013:i:c:p:37-49
    DOI: 10.1016/j.pacfin.2012.09.002
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    4. Michael O'Neill & Kent Wang & Zhangxin (Frank) Liu & Tom Smith, 2016. "A State-Price Volatility Index for China's Stock Market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 56(3), pages 607-626, September.
    5. Harendra Behera & Rajiv Ranjan & Sajjid Chinoy, 2022. "Does offshore NDF market influence onshore forex market? Evidence from India," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(6), pages 1167-1185, June.
    6. Jiadong Tong & Zijun Wang & Jian Yang, 2016. "Information Flow Between Forward and Spot Markets: Evidence From the Chinese Renminbi," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(7), pages 695-718, July.
    7. Tie‐Ying Liu & Chien‐Chiang Lee, 2022. "Exchange rate fluctuations and interest rate policy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3531-3549, July.
    8. Moussa K. Fall, 2017. "Trade Flows Versus Capital Flows: Are China’s Trade Surpluses Overestimated?," International Economic Journal, Taylor & Francis Journals, vol. 31(3), pages 448-461, July.
    9. Linnenluecke, Martina K. & Chen, Xiaoyan & Ling, Xin & Smith, Tom & Zhu, Yushu, 2016. "Emerging trends in Asia-Pacific finance research: A review of recent influential publications and a research agenda," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 66-76.
    10. Wang, Kai-Li & Fawson, Christopher & Chen, Mei-Ling & Wu, An-Chi, 2014. "Characterizing information flows among spot, deliverable forward and non-deliverable forward exchange rate markets: A cross-country comparison," Pacific-Basin Finance Journal, Elsevier, vol. 27(C), pages 115-137.
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    More about this item

    Keywords

    Prediction; Bayesian forecasting; Out-of-sample Granger tests of causality; Nested models; VAR; Bayesian VAR;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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