Series of Dept Research Seminars - “Dependence between Onshore and Offshore RMB based gold price: A Copula Approach" (Date: 10 November 2016)

With the growing internationalization of RMB, gold investment denominated in RMB has become an important instrument in Asian and worldwide financial markets. This research explores the dependence between onshore and offshore RMB based gold price using GARCH-copula models. We consider the day-of-week effect in mean equation and select seven constant copulas and three time-varying copulas to build joint distribution function. The results show that the constant Student-t copula fits the sample data best, followed by the time-varying SJC copula, and the Friday effect is not significant for either of the series. The positive tail dependence reflected by SJC copula proves the high dependence of the two series in extreme value cases. An interesting finding is that the upper tail dependence is larger than the lower shifts, which is not consistent with results of typical financial assets.

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