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Onshore and offshore market for Indian Rupee: recent evidence on volatility and shock spillover


  • Behera, Harendra


The paper empirically examines the onshore-offshore linkages of the Indian rupee using recently developed multivariate GARCH techniques. The empirical results show that offshore non deliverable forward (NDF) market does not have mean spillover impact on onshore spot, forward and futures market while shocks and volatilities in NDF market influence the onshore markets. The magnitude of volatility spillover from NDF to spot market, which was lower earlier, became higher after the introduction of currency futures in India. This is probably due to the fact that large arbitrage had taken place between futures and NDF market in recent past. Hence, the study suggests the close monitoring of both the onshore and offshore markets.

Suggested Citation

  • Behera, Harendra, 2010. "Onshore and offshore market for Indian Rupee: recent evidence on volatility and shock spillover," MPRA Paper 22247, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:22247

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    References listed on IDEAS

    1. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
    2. Guonan Ma & Corrinne Ho & Robert N McCauley, 2004. "The markets for non-deliverable forwards in Asian currencies," BIS Quarterly Review, Bank for International Settlements, June.
    3. Hideki Izawa, 2008. "An Empirical Test of the Efficiency Hypothesis on the Renminbi NDF in Hong Kong Market," Kobe Economic & Business Review, Research Institute for Economics & Business Administration, Kobe University, vol. 52, pages 1-6, February.
    4. Colavecchio, Roberta & Funke, Michael, 2008. "Volatility transmissions between renminbi and Asia-Pacific on-shore and off-shore U.S. dollar futures," China Economic Review, Elsevier, vol. 19(4), pages 635-648, December.
    5. Park, Jinwoo, 2001. "Information flows between non-deliverable forward (NDF) and spot markets: Evidence from Korean currency," Pacific-Basin Finance Journal, Elsevier, vol. 9(4), pages 363-377, August.
    6. Sangita Misra & Harendra Behera, 2007. "Non Deliverable Foreign Exchange Forward Market: An Overview," Working Papers id:1259, eSocialSciences.
    7. John Cairns & Corrinne Ho & Robert McCauley, 2007. "Exchange rates and global volatility: implications for Asia-Pacific currencies," BIS Quarterly Review, Bank for International Settlements, March.
    8. Patrick C. Higgins & Owen F. Humpage, 2005. "Nondeliverable forwards: can we tell where the renminbi is headed?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Sep.
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    Cited by:

    1. Sanjay Sehgal & Wasim Ahmad & Florent Deisting, 2015. "An investigation of price discovery and volatility spillovers in India’s foreign exchange market," Journal of Economic Studies, Emerald Group Publishing, vol. 42(2), pages 261-284, May.
    2. Ashima Goyal, 2015. "Foreign exchange markets, intervention and exchange rate regimes," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2015-011, Indira Gandhi Institute of Development Research, Mumbai, India.
    3. Maria Socorro Gochoco-Bautista & Jianxin Wang & Minxian Yang, 2014. "Commodity Price, Carry Trade, and the Volatility and Liquidity of Asian Currencies," The World Economy, Wiley Blackwell, vol. 37(6), pages 811-833, June.
    4. Samar Maziad & Joong S Kang, 2012. "RMB Internationalization; O+L5022nshore/Offshore Links," IMF Working Papers 12/133, International Monetary Fund.
    5. Robert N McCauley & Chang Shu & Guonan Ma, 2014. "Non-deliverable forwards: 2013 and beyond," BIS Quarterly Review, Bank for International Settlements, March.

    More about this item


    Non deliverable forward; volatility spillover; multivariate GARCH;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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