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Renminbi Revaluation, Euro Appreciation and Chinese Markets: What Can We Learn From Data?

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Author Info

  • Paul D. McNelis

    (Fordham University)

  • Salih N. Neftci

    (City University of New York)

Abstract

This paper examines financial market data to assess the likelihood of renminbi revaluation and its implications for Chinese share price increases, given the continuing appreciation of the Euro against the U.S. dollar. We find that the 3-month non-deliverable forward premia are key series linking these variables. The forward premia predict series A share-price changes, while Euro/US dollar exchange rates in turn predict foreward-premia. Bayesian models outperform standard linear models for forecasting performance.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 012006.

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Length: 19 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:hkm:wpaper:012006

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Related research

Keywords: Prediction; Bayesian forecasting; Granger tests of causality; nested models;

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  1. Litterman, Robert B, 1986. "Forecasting with Bayesian Vector Autoregressions-Five Years of Experience," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 4(1), pages 25-38, January.
  2. Giacomini, Raffaella & White, Halbert, 2003. "Tests of Conditional Predictive Ability," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt5jk0j5jh, Department of Economics, UC San Diego.
  3. Inoue, Atsushi & Kilian, Lutz, 2003. "On the selection of forecasting models," Working Paper Series, European Central Bank 0214, European Central Bank.
  4. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, Elsevier, vol. 45(1-2), pages 39-70.
  5. Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers 0169, National Bureau of Economic Research, Inc.
  6. Norman R. Swanson, 2000. "An Out of Sample Test for Granger Causality," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0362, Econometric Society.
  7. repec:att:wimass:9520 is not listed on IDEAS
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