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Risks 2018, 6(4), 120; https://doi.org/10.3390/risks6040120

RMB Exchange Rates and Volatility Spillover across Financial Markets in China and Japan

1
School of Economics, Shandong University, Jinan 250100, China
2
School of Business and Law, Edith Cowan University, Joondalup, WA 6027, Australia
*
Author to whom correspondence should be addressed.
Received: 31 August 2018 / Revised: 28 September 2018 / Accepted: 9 October 2018 / Published: 12 October 2018
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Abstract

This study examines empirically the volatility spillover effects between the RMB foreign exchange markets and the stock markets by employing daily returns of the Chinese RMB exchange rates and the stock markets in China and Japan during the period in 1998–2018. We find evidence that there exist co-volatility effects among the financial markets in China and Japan, and the volatility of RMB exchange rates contribute to the co-volatility spillovers across the financial markets. Reversely, the return shock from the stock markets can also generate co-volatility spillover to the foreign exchange markets. The bidirectional relationship reveals that both the fundamental hypothesis and the investor-induced hypothesis are valid. Our estimates also show that the spillover effects led by the stock market in Japan are stronger than that from the foreign exchange markets and the Chinese stock markets, implying that market with higher accessibility has greater spillover effects onto other markets. We also found that the average co-volatility spillover effects among the RMB exchange markets and the stock markets in Japan and China are generally negative. These findings have important policy implications for risk management and hedging strategies. View Full-Text
Keywords: Chinese RMB; stock markets; volatility; spillover effects Chinese RMB; stock markets; volatility; spillover effects
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Qin, F.; Zhang, J.; Zhang, Z. RMB Exchange Rates and Volatility Spillover across Financial Markets in China and Japan. Risks 2018, 6, 120.

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