The Price Discovery Puzzle in Offshore Yuan Trading: Different Contributions for Different Contracts

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 di...

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Main Authors: DING, David K., TSE, Yiuman, WILLIAMS, Michael R.
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2014
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Online Access:https://ink.library.smu.edu.sg/lkcsb_research/3602
https://ink.library.smu.edu.sg/context/lkcsb_research/article/4601/viewcontent/Price_discovery_puzzle_2014_av.pdf
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spelling sg-smu-ink.lkcsb_research-46012021-03-29T02:43:10Z The Price Discovery Puzzle in Offshore Yuan Trading: Different Contributions for Different Contracts DING, David K. TSE, Yiuman WILLIAMS, Michael R. 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. 2014-02-01T08:00:00Z text application/pdf https://ink.library.smu.edu.sg/lkcsb_research/3602 info:doi/10.1002/fut.21575 https://ink.library.smu.edu.sg/context/lkcsb_research/article/4601/viewcontent/Price_discovery_puzzle_2014_av.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Asian Studies Finance and Financial Management Portfolio and Security Analysis
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Asian Studies
Finance and Financial Management
Portfolio and Security Analysis
spellingShingle Asian Studies
Finance and Financial Management
Portfolio and Security Analysis
DING, David K.
TSE, Yiuman
WILLIAMS, Michael R.
The Price Discovery Puzzle in Offshore Yuan Trading: Different Contributions for Different Contracts
description 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.
format text
author DING, David K.
TSE, Yiuman
WILLIAMS, Michael R.
author_facet DING, David K.
TSE, Yiuman
WILLIAMS, Michael R.
author_sort DING, David K.
title The Price Discovery Puzzle in Offshore Yuan Trading: Different Contributions for Different Contracts
title_short The Price Discovery Puzzle in Offshore Yuan Trading: Different Contributions for Different Contracts
title_full The Price Discovery Puzzle in Offshore Yuan Trading: Different Contributions for Different Contracts
title_fullStr The Price Discovery Puzzle in Offshore Yuan Trading: Different Contributions for Different Contracts
title_full_unstemmed The Price Discovery Puzzle in Offshore Yuan Trading: Different Contributions for Different Contracts
title_sort price discovery puzzle in offshore yuan trading: different contributions for different contracts
publisher Institutional Knowledge at Singapore Management University
publishDate 2014
url https://ink.library.smu.edu.sg/lkcsb_research/3602
https://ink.library.smu.edu.sg/context/lkcsb_research/article/4601/viewcontent/Price_discovery_puzzle_2014_av.pdf
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