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Three years after my graduation I recently received great news. The paper with the title “Determinants of the onshore and offshore Chinese government yield curves” which is a co-development of Prof. Horst Löchel, Prof. Natalie Packham as well as myself got accepted for publication in the Pacific-Basin Finance Journal which ranks among the top finance journals in the Asia Pacific region. The paper is essentially an enhanced version of the master thesis that I had submitted back in 2012. In a nutshell, we analyze and compare the impact of various market and policy variables from China on the government bond yield curves in the onshore and offshore Renminbi (RMB) market in Hong Kong.
With this article I would like to share my experience with the faculty, current students at the Frankfurt School as well as other interested persons and give an insight into the approach of developing a peer-reviewed research paper based on a master thesis.
Unlike the situation many other students usually face, choosing an appropriate topic area for my master thesis was quite simple to me. As part of a dual training program that I had completed at a large German bank I was lucky to have had the opportunity to work in the Corporate Banking department in Hong Kong for almost half a year back in 2009. Directly after the peak of the global financial crisis, it was during that time when China’s government started to increase its efforts to internationalize the RMB. In the years to follow the level of activity in the so called “Dim Sum” bond market in Hong Kong increased significantly. The dynamics of this new market have fascinated me from the beginning on which is why I frequently observed its development.
In 2012, when the preparation phase for the master thesis came closer I had to concretize my research question and thought about comparing the offshore RMB bond market with its onshore counterpart in a certain quantitative way.
The next step was to find two suitable supervisors: A China expert and a technical expert. Given the circumstance that I would have to start the thesis in the midst of my semester abroad at UNSW Business School in Sydney did not really make this step easier. However, I finally found the ideal persons: Prof. Löchel and Prof. Packham
Initially, we held several meetings in order to find a suitable research question on the offshore RMB market. My “homework” after each discussion was to check for the existence of a research gap in the literature and for the availability of data in order to find an answer to the research gap. As I had to handle full-time studies and exam sessions in parallel I spent numerous long evenings at the campus specifically checking for data at the Bloomberg terminal and compiling pre-analysis. After nearly eight weeks had passed I finally found an appropriate topic: “Determinants of the Chinese Government Yield Curve – A Comparison between the Onshore and the Offshore Market in Hong Kong”.
Personally, I found the compilation of the thesis itself much easier than the research that was necessary in order to find the perfect topic. First I had to run the analysis. This included the extraction of the bond data as well as the information on the market and policy variables from Bloomberg and the HKMA website. Some bond data were not available in the form of zero yields. In such case bootstrapping was necessary. For the regression analysis involving macroeconomic variables it was necessary to set up a model in Matlab. After running the regressions, I created the necessary charts and tables and wrote the thesis.
It turned out to be worth the effort to put a lot of time and energy into the thesis – Prof. Löchel and Prof. Packham rated the thesis as “excellent”. They even suggested to compile a research paper based on the thesis with an enhanced statistical analysis which is well beyond the scope of a master thesis.
The kick off for the paper was in 2013. In a first step, we made an extensive reassessment on the necessity of each macroeconomic determinant. We also introduced a new economic context for the interpretation of the results.
In order to get feedback from the research community on our undertaking Prof. Packham discussed the concept of our paper at the EU-China Research Colloquium at CEIBS, Shanghai, as well as at the 11th INFINITI conference on international finance in Aix-en-Province. We also had a discussion on the “Dim Sum” bond market with Paul Leonhard and Zhiming Li from DZ Bank in Hong Kong.
Based on the valuable feedback we made adjustments to our concept, conducted the enhanced statistical analysis, finished writing our paper and handed it in for publication in a top notch generalist finance paper.
Unfortunately, the time frame for the analysis turned out to be too short from a statistical point of view. So we had to wait until 2015 in order to conduct the statistical analysis one further time. Of course, running the analysis again necessitated an update of the market, result and interpretation sections as well. This time, we also decided to hand the paper in for publication in the Pacific-Basin Finance Journal which is more suitable for finance topics related to the Asia Pacific region. After some further updates, we handed in a revised version which finally got accepted for publication in November 2015.
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I have to admit that pursuing a career in M&A and writing an academic paper in parallel can be quite challenging. However, I am very happy with the publication of the paper and can recommend it to anyone who has the opportunity to do it. Not only have I learned a lot about how modern research is conducted but I also frequently updated my knowledge on topics around China and the offshore RMB market which is also relevant to my job. Today, the topic of RMB internationalization is hotter than ever. Just recently it has been decided that the RMB will be included in the SDR basket by the IMF in October 2016 which makes the RMB one of the leading currencies in the world. On the other hand, many people are closely observing the USD/CNY exchange rate movements these days given the recent volatility in China’s stock market and its contagion effects on other markets around the world.
Finally, I would like to say thanks to Prof. Löchel and Prof. Packham. Without their support it would not have been possible to publish the paper!
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