Measuring the onshore and offshore RMB markets: A test for CNY, CNH and CNT

The renminbi (RMB) offshore market in Taiwan began on September 1, 2014 with a cross-strait MOU, completing the RMB market over mainland China, Hong Kong and Taiwan. Due to subsequent political and economic disruptions, such as the global economic tsunami followed by mainland China’s stock market crash and RMB exchange rate reform in 2015, as well as failure of the Service Trade Agreement between Taiwan and mainland China in 2016, it is now appropriate to explore arbitrage opportunities among the three RMB markets. This paper evaluates the convergence and divergence of RMB market returns by the sigma-convergence (or log t) test for a more precise indication of market return convergence than the traditional unit root test. Our result shows mainland China’s financial linkages with RMB markets in Hong Kong and Taiwan, while mainland China’s growing influence has not yet reached the levels of traditional financial centers. Policy implications for the RMB arbitrage are also provided.