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Detrended cross-correlation analysis approach for assessing asymmetric multifractal detrended cross-correlations and their application to the Chinese financial market

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  • Cao, Guangxi
  • Cao, Jie
  • Xu, Longbing
  • He, LingYun

Abstract

We propose a new method called the multifractal asymmetric detrended cross-correlation analysis method (MF-ADCCA) to investigate the asymmetric cross-correlations in nonstationary time series that combine the multifractal detrended cross-correlation analysis (MF-DCCA) and asymmetric detrended fluctuation analysis (A-DFA). The study aims to determine whether different scaling properties of the cross-correlations are obtained if a one-time series trending is either positive or negative. We apply MF-ADCCA to analyze empirically the scaling behavior of the cross-correlations among the Chinese stock market, the RMB exchange market, and the US stock market. Empirical results indicate that the cross-correlations between the Chinese stock market and the RMB/USD exchange market are more persistent when any one of the markets is falling. On the contrary, the cross-correlations between the Chinese stock market and the RMB/EU, RMB/GBP, RMB/JPY exchange markets and the US stock market are more persistent when one of the markets is rising. Moreover, asymmetric cross-correlations between any two of the selected financial markets are multifractal.

Suggested Citation

  • Cao, Guangxi & Cao, Jie & Xu, Longbing & He, LingYun, 2014. "Detrended cross-correlation analysis approach for assessing asymmetric multifractal detrended cross-correlations and their application to the Chinese financial market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 393(C), pages 460-469.
  • Handle: RePEc:eee:phsmap:v:393:y:2014:i:c:p:460-469
    DOI: 10.1016/j.physa.2013.08.074
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    10. Zebende, G.F. & da Silva, M.F. & Machado Filho, A., 2013. "DCCA cross-correlation coefficient differentiation: Theoretical and practical approaches," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(8), pages 1756-1761.
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