Information Flow between Forward and Spot Markets: Evidence from the Chinese Renminbi

Journal of Futures Markets, Forthcoming

46 Pages Posted: 24 Aug 2015

See all articles by Jiadong Tong

Jiadong Tong

Independent

Zijun Wang

Texas A&M University

Jian Yang

University of Colorado at Denver - Business School

Date Written: August 22, 2015

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.

Keywords: exchange rates, forward market, term structure, cointegration, structural breaks

JEL Classification: F31, F37

Suggested Citation

Tong, Jiadong and Wang, Zijun and Yang, Jian, Information Flow between Forward and Spot Markets: Evidence from the Chinese Renminbi (August 22, 2015). Journal of Futures Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2649512

Jiadong Tong

Independent

Zijun Wang

Texas A&M University ( email )

Langford Building A
798 Ross St.
College Station, TX 77843-3137
United States

Jian Yang (Contact Author)

University of Colorado at Denver - Business School ( email )

1250 14th St.
Denver, CO 80204
United States

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