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The relationship between the Renminbi future spot return and the forward discount rate

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  • Zhao, Yanping
  • de Haan, Jakob
  • Scholtens, Bert
  • Yang, Haizhen

Abstract

We use rolling cointegration tests to investigate the relationship between the Renminbi daily future spot return and the forward discount rate for the period after the currency regime reform in China in July 2005. We find that there are different regimes after this reform and that the financial crisis affects the relationship between the future spot return and the forward discount rate in China. The unbiasedness hypothesis that the forward rate is an unbiased predictor of the future spot rate requires cointegration and a unity coefficient for the forward discount. We conclude that the unbiased forward rate hypothesis only holds in Spring 2009, when the Chinese authorities returned to pegging the Renminbi to the US dollar to overcome the turmoil of the global financial crisis.

Suggested Citation

  • Zhao, Yanping & de Haan, Jakob & Scholtens, Bert & Yang, Haizhen, 2013. "The relationship between the Renminbi future spot return and the forward discount rate," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 156-168.
  • Handle: RePEc:eee:jimfin:v:32:y:2013:i:c:p:156-168
    DOI: 10.1016/j.jimonfin.2012.04.003
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    References listed on IDEAS

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    Cited by:

    1. Jiadong Tong & Zijun Wang & Jian Yang, 2016. "Information Flow Between Forward and Spot Markets: Evidence From the Chinese Renminbi," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(7), pages 695-718, July.
    2. Atilgan, Yigit & Demirtas, K. Ozgur & Simsek, Koray D., 2016. "Derivative markets in emerging economies: A survey," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 88-102.

    More about this item

    Keywords

    China; US; Renminbi; Future forward bias; Financial crisis; Cointegration;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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