Managed Exchange Rates, Dual Listing, and Foreign Exchange Exposure: The Experience of Chinese Banks Around the Financial Crisis

Journal of the Asia Pacific Economy, Vol. 16, No. 3, pp. 393-421, 2011

46 Pages Posted: 12 Aug 2011

See all articles by Min

Min

affiliation not provided to SSRN

Elaine Hutson

Monash University - Dept of Banking and Finance; Financial Research Network (FIRN)

Date Written: August 12, 2011

Abstract

Using daily equity price data from July 2005 to November 2009, we find that most of the 14 Chinese listed banks are highly exposed to the RMB/USD exchange rate. By breaking our data period into two subperiods around the financial crisis, we find that Chinese banks were even more exposed in the post-crisis period, despite the fact that the renminbi reverted to a de facto peg against the dollar in September 2008. This cannot be explained by direct foreign exchange exposure, and we argue that China’s banks are subject to substantial indirect exposure as a result of concerns about their loan books in the face of anticipated further appreciation of the RMB. We also find that the exchange rate sensitivities of the twin shares of dual-listed Chinese banks (those listed in China and Hong Kong) are very different – not only in magnitude but also in sign. We discuss two possible explanations for this: investor sentiment and “hot money” inflows into China.

Keywords: foreign exchange exposure, banking sector, dual-listing, financial crisis, China

JEL Classification: F31, G01, G21

Suggested Citation

Ye, Min and Hutson, Elaine, Managed Exchange Rates, Dual Listing, and Foreign Exchange Exposure: The Experience of Chinese Banks Around the Financial Crisis (August 12, 2011). Journal of the Asia Pacific Economy, Vol. 16, No. 3, pp. 393-421, 2011, Available at SSRN: https://ssrn.com/abstract=1908708

Min Ye (Contact Author)

affiliation not provided to SSRN ( email )

Elaine Hutson

Monash University - Dept of Banking and Finance ( email )

PO Box 197
Caulfield East, Victoria 3145
Australia
+61399032110 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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