Publication Type

Journal Article

Version

acceptedVersion

Publication Date

2-2014

Abstract

The People's Bank of China (PBC) lifted yuan trading restrictions in July of 2010 that led to offshore yuan spot trading in Hong Kong. Based on causality analyses, we find that price discovery is absent between the onshore and offshore spot markets. However, we document the presence of price discovery between onshore spot and offshore nondeliverable forward (NDF) rates. These seemingly inconsistent results present a puzzle wherein one offshore market appears to be more informationally integrated with the onshore market than another. We conclude that price discovery differences in the offshore markets stem from the offshore spot and forward contracts tracking different aspects of yuan rates (e.g., the offshore nondeliverable rate tracks onshore spot rates whereas the offshore spot rate tracks onshore interest rates). Moreover, the introduction of offshore spot trading in Hong Kong has led to an increase in cross-market price discovery between onshore spot and offshore NDF rates.

Discipline

Asian Studies | Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Journal of Futures Markets

Volume

34

Issue

2

First Page

103

Last Page

123

ISSN

1096-9934

Identifier

10.1002/fut.21575

Publisher

Wiley

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1002/fut.21575

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