Price discovery and dynamic correlations: The case of the Chinese renminbi markets

Kin-Yip Ho*, Yanlin Shi, Zhaoyong Zhang

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingConference proceeding contributionpeer-review


The Chinese renminbi (RMB) currency system has undergone several major developments in the past two decades, including the adoption of a managed-floating system since July 2005, the expansion of an offshore RMB non-deliverable forward (NDF) market, and the relaxation of certain regulatory controls to promote the increased use of the RMB in the region. These developments have sparked intense debate on the potential of RMB internationalization and its pros and cons. In view of these developments, this paper provides a comprehensive analysis of the dynamics of the RMB in both the spot and NDF markets since 2005 by examining the role and significance of the RMB NDF by quantifying the contributions of the RMB spot and NDF rates in the price discovery process and the volatility dynamics of the RMB markets by adopting two different frameworks with multivariate Student's t-distribution and time-varying conditional correlations. The results indicate that asymmetric volatility effects are significant for several NDF contract maturities and the spot-NDF correlations are significantly time-varying. Moreover, shocks to the volatility levels are highly persistent. Causality tests on the spot and NDF volatilities further suggest that the NDF markets impact the future fluctuations of the spot market, but the spot market does not have predictive power for the volatility of the NDF markets.

Original languageEnglish
Title of host publicationA new paradigm for international business
Subtitle of host publicationproceedings of the Conference on Free Trade Agreements and Regional Integration in East Asia
EditorsHadrian Geri Djajadikerta, Zhaoyong Zhang
Place of PublicationSingapore
PublisherSpringer, Springer Nature
Number of pages15
ISBN (Electronic)9789812874993
ISBN (Print)9789812874986
Publication statusPublished - 2015
Externally publishedYes
EventAsia Pacific Business Conference on Free Trade Agreements and Regional Integration in East Asia - , Australia
Duration: 27 Nov 201429 Nov 2014

Publication series

NameSpringer Proceedings in Business and Economics
ISSN (Print)2198-7246
ISSN (Electronic)2198-7254


ConferenceAsia Pacific Business Conference on Free Trade Agreements and Regional Integration in East Asia


  • Price discovery
  • Dynamic correlations
  • Chinese renminbi

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