Analyzing the Cross-Correlation Between Onshore and Offshore RMB Exchange Rates Based on Multifractal Detrended Cross-Correlation Analysis (MF-DCCA)

Abstract

We use the multifractal detrended cross-correlation analysis (MF-DCCA) method to explore the multifractal behavior of the cross-correlation between exchange rates of onshore RMB (CNY) and offshore RMB (CNH) against US dollar (USD). The empirical data are daily prices of CNY/USD and CNH/USD from May 1, 2012 to February 29, 2016. The results demonstrate that: (i) the cross-correlation between CNY/USD and CNH/USD is persistent and its fluctuation is smaller when the order of fluctuation function is negative than that when the order is positive; (ii) the multifractal behavior of the cross-correlation between CNY/USD and CNH/USD is significant during the sample period; (iii) the dynamic Hurst exponents obtained by the rolling windows analysis show that the cross-correlation is stable when the global economic situation is good and volatile in bad situation; and (iv) the non-normal distribution of original data has a greater effect on the multifractality of the cross-correlation between CNY/USD and CNH/USD than the temporary correlation.