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Information Flow Between Forward and Spot Markets: Evidence From the Chinese Renminbi

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  • Jiadong Tong
  • Zijun Wang
  • Jian Yang

Abstract

We apply a new model selection approach that allows for the joint determination of structural breaks and cointegration to examine the term structure of Chinese Renminbi (RMB)‐U.S. dollar spot and forward exchange rates during the managed‐floating period of 2005–2013. We find that the RMB market has exhibited different dynamic relationships between spot and forward exchange rates over time, apparently due to significant policy changes. Offshore forward rates with either shorter or longer maturities can substantially explain the in‐sample variation of the onshore spot exchange rate at longer horizons, while only the offshore forward rate with a shorter maturity can significantly predict RMB onshore spot rate changes out‐of‐sample. © 2015 Wiley Periodicals, Inc. Jrl Fut Mark 36:695–718, 2016

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  • 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.
    • Handle: RePEc:wly:jfutmk:v:36:y:2016:i:7:p:695-718
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    References listed on IDEAS

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    1. Cheung, Yin-Wong & Rime, Dagfinn, 2014. "The offshore renminbi exchange rate: Microstructure and links to the onshore market," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 170-189.
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    3. Corbae,Dean & Durlauf,Steven N. & Hansen,Bruce E. (ed.), 2006. "Econometric Theory and Practice," Cambridge Books, Cambridge University Press, number 9780521807234, January.
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    2. Lei Ming & Xinran Zhang & Qianqiu Liu & Shenggang Yang, 2020. "A revisit to the hedge and safe haven properties of gold: New evidence from China," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(9), pages 1442-1456, September.
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    4. Yanping Zhao & Zaghum Umar & Xuan Vinh Vo, 2021. "Return and volatility connectedness of Chinese onshore, offshore, and forward exchange rate," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(11), pages 1843-1860, November.

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