| ID | 138902 |
| Title Proper | Currency exposure in China under the new exchange rate regime |
| Other Title Information | national level evidence |
| Language | ENG |
| Author | Nie, Jing ; Zhang, Zhichao ; Zhang, Zhuang ; Zhou, Si |
| Summary / Abstract (Note) | The present paper studies China's national level currency exposure since 2005 when the country adopted a new exchange rate regime allowing the renminbi (RMB) to move towards greater flexibility. Using generalized autoregressive conditional heteroskedastic and constant conditional correlation-generalized autoregressive conditional heteroskedastic methods to estimate the augmented capital asset pricing models with orthogonalized stock returns, we find that China equity indexes are significantly exposed to exchange rate movements. In a static setting, there is strong sensitivity of stock returns to movements of China's tradeweighted exchange rate, and to the bilateral exchange rates except the RMB/dollar rate. However, in a dynamic framework, exposure to all the bilateral currency pairs under examination is significant. The results indicate that under the new exchange rate regime, China's gradualist approach to moving towards greater exchange rate flexibility has managed to keep exposure to a moderate level. However, we find evidence that in a dynamic setting, the exposure of the RMB to the dollar and other major currencies is significant. For China, the challenge of managing currency risk exposure is looming greater. |
| `In' analytical Note | China and World Economy Vol. 23, No.3; May/Jun 2015: p.97–109 |
| Journal Source | China and World Economy 2015-06 23, 3 |
| Key Words | Exchange rate regime ; Capital Asset Pricing Models ; Currency Exposure ; Generalized Autoregressive Conditional Heteroskedastic Modeling |