Characterizing information flows among spot, deliverable forward and non-deliverable forward exchange rate markets: A cross-country comparison

• Structural differences exist between offshore and onshore exchange rate markets.
• External factors are important determinants of Asian exchange rate market dynamics.
• An error correction process adds value in exploring market differences.
• Leverage and cross asymmetry effects are evident in exchange rate dynamics.
• Cross-market correlation increases during periods of high exogenous volatility.

Using an innovative GMGARCH-MSKST model that allows for asymmetric generalized dynamic conditional correlation, this paper analyzes return and volatility interactions among spot, non-deliverable forward (NDF) and deliverable forward (DF) exchange rate markets for Korea and Taiwan. With the backdrop of these two very different regulatory and institutional regimes we examine how the inter-temporal dynamics of forward-directed currency market instruments are both influenced by, and influence, spot market exchange rates.