Volatility Dependence Across Asia-Pacific Onshore and Offshore Currency Forwards Markets

Abstract

This working paper was written by Roberta Colavecchio (Hamburg University) and Michael Funke (Hamburg University).

This paper estimates switching autoregressive conditional heteroskedasticity (SWARCH) time series models for weekly returns of nine Asian forward exchange rates. We find two regimes with different volatility levels, whereby each regime displays considerable persistence. Our analysis provides evidence that the knock-on effects from China's currency forwards markets upon other Asian countries have been modest, in that little evidence exists for co-dependence of volatility regimes.

Keywords: China, Renminbi, Asia, Forward Exchange Rates, Non-Deliverable Forward Market, SWARCH Models

JEL Classification: C22, F31, F36