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

Author

Listed:
  • 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.

Suggested Citation

  • Paul D. McNelis & Salih N. Neftci, 2006. "Renminbi Revaluation, Euro Appreciation and Chinese Markets: What Can We Learn From Data?," Working Papers 012006, Hong Kong Institute for Monetary Research.
    • Handle: RePEc:hkm:wpaper:012006
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Prediction; Bayesian forecasting; Granger tests of causality; nested models;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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