In this study, we leverage various price discovery measurements to investigate whether and how the addition of the Chinese yuan in Special Drawing Right (SDR) affected price discovery in onshore (USD/CNY) and offshore (USD/CNH) markets. The results show that the less regulated offshore exchange rates contribute more to price discovery than the onshore rates do. Including the yuan in SDR does not change the relative price discovery contributions of the onshore and offshore markets, and more importantly, it enhances the overall price efficiency in both markets, due to lower autocorrelations in the error correction term and fewer arbitrage opportunities. In particular, the price spreads between the onshore and offshore markets decrease, implying that arbitrage opportunities have diminished, as market integration has increased, following the inclusion of the yuan in SDR.

The momentum life cycle (MLC) hypothesis proposed by Lee and Swaminathan (2000) is spurious because it is largely driven by multiplying two widely documented effects on momentum and turnover. After controlling for these two effects, what remains is a negative return pattern for late-stage momentum, mostly driven by the higher returns of low-turnover losers. Although the higher returns of low-turnover losers disappear either under a risk adjustment or with the inclusion of NASDAQ stocks, they remain significant during periods of optimism, thus supporting the underreaction theory of momentum proposed by Hong and Stein (2007), whereby turnover proxies for the divergence of opinion among investors.