Option-implied volatility spillovers between onshore and offshore RMB exchange rates

This research examines the spillovers of option-implied volatilities between onshore and offshore RMB exchange rates from static and dynamic, symmetric and asymmetric perspectives during the period from November 2014 to December 2021. By employing the FIVAR-based connectedness approach, we find significant volatility spillovers between onshore and offshore RMB exchange rates, with the latter having a greater impact on the former. In addition, the spillover effect is time-varying and easily influenced by internal reforms and external shocks, such as the 8.11 RMB exchange rate reform, Sino-US trade frictions, and the outbreak of the COVID-19 pandemic. We further observe that the spillovers between the downside volatility are higher than that of the upside volatility, and the duration dominated by the downside volatility is longer. Our findings have important implications for policymakers and investors in risk management.