Evidences for Price Discovery between On- and Off-shore Won/Dollar Spot, Forward and NDF FX Rate

Using Hasbrouck’s (1995, 2002) information share method, we examine the mutual price discovery dynamics among Won/Dollar spot, forward, and NDF exchange rates in on- and off-shore FX markets. Our findings include : (i) During the entire period, the mutual price discovery between on-shore FX market and off-shore NDF market are significantly led by on-shore Won-Dollar spot and forward exchange rates. (ii) Within the period around the global crisis, NDF exchange rates have mutual influence on the price discovery, which is expecially greater than the any other period. The results show Won-Dollar spot exchange rate fluctuations during the global crisis are greatly affected by external factors of the international financial markets. Not only that, but off-shore NDF trading promptly reflects the price information of KRW on the factors.