IDEAS home Printed from https://ideas.repec.org/p/arx/papers/1803.09432.html
   My bibliography  Save this paper

Time-dependent lead-lag relationship between the onshore and offshore Renminbi exchange rates

Author

Listed:
  • Hai-Chuan Xu

    (ECUST)

  • Wei-Xing Zhou

    (ECUST)

  • Didier Sornette

    (ETH Zurich)

Abstract

We employ the thermal optimal path method to explore both the long-term and short-term interaction patterns between the onshore CNY and offshore CNH exchange rates (2012-2015). For the daily data, the CNY and CNH exchange rates show a weak alternate lead-lag structure in most of the time periods. When CNY and CNH display a large disparity, the lead-lag relationship is uncertain and depends on the prevailing market factors. The minute-scale interaction pattern between the CNY and CNH exchange rates change over time according to different market situations. We find that US dollar appreciation is associated with a lead-lag relationship running from offshore to onshore, while a (contrarian) Renminbi appreciation is associated with a lead-lag relationship running from onshore to offshore. These results are robust with respect to different sub-sample analyses and variations of the key smoothing parameter of the TOP method.

Suggested Citation

  • Hai-Chuan Xu & Wei-Xing Zhou & Didier Sornette, 2018. "Time-dependent lead-lag relationship between the onshore and offshore Renminbi exchange rates," Papers 1803.09432, arXiv.org.
    • Handle: RePEc:arx:papers:1803.09432
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/1803.09432
    File Function: Latest version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
    2. Mr. R. S Craig & Mr. Changchun Hua & Philip Ng & Raymond Yuen, 2013. "Development of the Renminbi Market in Hong Kong SAR: Assessing Onshore-Offshore Market Integration," IMF Working Papers 2013/268, International Monetary Fund.
    3. Cheung, Yin-Wong & Rime, Dagfinn, 2014. "The offshore renminbi exchange rate: Microstructure and links to the onshore market," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 170-189.
    4. David K. Ding & Yiuman Tse & Michael R. Williams, 2014. "The Price Discovery Puzzle in Offshore Yuan Trading: Different Contributions for Different Contracts," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 34(2), pages 103-123, February.
    5. David Leung & John Fu, 2014. "Interactions between CNY and CNH Money and Forward Exchange Markets," Working Papers 132014, Hong Kong Institute for Monetary Research.
    6. Wang, Yi David, 2015. "Convertibility restriction in China’s foreign exchange market and its impact on forward pricing," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 616-631.
    7. Zhou, Wei-Xing & Sornette, Didier, 2006. "Non-parametric determination of real-time lag structure between two time series: The "optimal thermal causal path" method with applications to economic data," Journal of Macroeconomics, Elsevier, vol. 28(1), pages 195-224, March.
    8. Didier Sornette & Wei-Xing Zhou, 2005. "Non-parametric determination of real-time lag structure between two time series: the 'optimal thermal causal path' method," Quantitative Finance, Taylor & Francis Journals, vol. 5(6), pages 577-591.
    9. Kun Guo & Wei-Xing Zhou & Si-Wei Cheng & Didier Sornette, 2011. "The US Stock Market Leads the Federal Funds Rate and Treasury Bond Yields," PLOS ONE, Public Library of Science, vol. 6(8), pages 1-9, August.
    10. Ashley, R & Granger, C W J & Schmalensee, R, 1980. "Advertising and Aggregate Consumption: An Analysis of Causality," Econometrica, Econometric Society, vol. 48(5), pages 1149-1167, July.
    11. Ka-Fai Li & Cho-Hoi Hui & Tsz-Kin Chung, 2012. "Determinants and Dynamics of Price Disparity in Onshore and Offshore Renminbi Forward Exchange Rate Markets," Working Papers 242012, Hong Kong Institute for Monetary Research.
    12. repec:zbw:bofitp:2014_017 is not listed on IDEAS
    13. Cheung, Yin-Wong & Rime, Dagfinn, 2014. "The offshore renminbi exchange rate: Microstructure and links to the onshore market," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 170-189.
    14. Hao Meng & Hai-Chuan Xu & Wei-Xing Zhou & Didier Sornette, 2017. "Symmetric thermal optimal path and time-dependent lead-lag relationship: novel statistical tests and application to UK and US real-estate and monetary policies," Quantitative Finance, Taylor & Francis Journals, vol. 17(6), pages 959-977, June.
    15. Geweke, John, 1984. "Inference and causality in economic time series models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 19, pages 1101-1144, Elsevier.
    16. Funke, Michael & Shu, Chang & Cheng, Xiaoqiang & Eraslan, Sercan, 2015. "Assessing the CNH–CNY pricing differential: Role of fundamentals, contagion and policy," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 245-262.
    17. Zhou, Wei-Xing & Sornette, Didier, 2007. "Lead-lag cross-sectional structure and detection of correlated–anticorrelated regime shifts: Application to the volatilities of inflation and economic growth rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 380(C), pages 287-296.
    18. Shu, Chang & He, Dong & Cheng, Xiaoqiang, 2015. "One currency, two markets: the renminbi's growing influence in Asia-Pacific," China Economic Review, Elsevier, vol. 33(C), pages 163-178.
    19. Gong, Chen-Chen & Ji, Shen-Dan & Su, Li-Ling & Li, Sai-Ping & Ren, Fei, 2016. "The lead–lag relationship between stock index and stock index futures: A thermal optimal path method," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 444(C), pages 63-72.
    20. Zhang, Zhichao & Chau, Frankie & Zhang, Wenting, 2013. "Exchange rate determination and dynamics in China: A market microstructure analysis," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 303-316.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shao, Ying-Hui & Yang, Yan-Hong & Shao, Hao-Lin & Stanley, H. Eugene, 2019. "Time-varying lead–lag structure between the crude oil spot and futures markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 523(C), pages 723-733.
    2. Cheung, Yin-Wong & Hui, Cho-Hoi & Tsang, Andrew, 2018. "The RMB central parity formation mechanism: August 2015 to December 2016," Journal of International Money and Finance, Elsevier, vol. 86(C), pages 223-243.
    3. Tian, Shuairu & Gao, Xiang & Cai, Xiaojing, 2023. "The interactive CNY-CNH relationship: A wavelet analysis," Journal of International Money and Finance, Elsevier, vol. 133(C).
    4. Yao, Can-Zhong & Li, Hong-Yu, 2020. "Time-varying lead–lag structure between investor sentiment and stock market," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    5. Yang, Yan-Hong & Shao, Ying-Hui, 2020. "Time-dependent lead-lag relationships between the VIX and VIX futures markets," The North American Journal of Economics and Finance, Elsevier, vol. 53(C).
    6. Yin-Wong Cheung & Cho-Hoi Hui & Andrew Tsang, 2017. "The RMB Central Parity Formation Mechanism after August 2015: A Statistical Analysis," Working Papers 062017, Hong Kong Institute for Monetary Research.
    7. Sun, Yuying & Bao, Qin & Zheng, Jiali & Wang, Shouyang, 2020. "Assessing the price dynamics of onshore and offshore RMB markets: An ITS model approach," China Economic Review, Elsevier, vol. 62(C).
    8. Yanping Zhao & Zaghum Umar & Xuan Vinh Vo, 2021. "Return and volatility connectedness of Chinese onshore, offshore, and forward exchange rate," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(11), pages 1843-1860, November.
    9. Hu, Genhua & Wang, Xiangjin & Qiu, Hong, 2023. "Analyzing a dynamic relation between RMB exchange rate onshore and offshore during the extreme market conditions," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 408-417.
    10. Guo, Kun & Sun, Yi & Qian, Xin, 2017. "Can investor sentiment be used to predict the stock price? Dynamic analysis based on China stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 469(C), pages 390-396.
    11. Yin-Wong Cheung & Cho-Hoi Hui & Andrew Tsang, 2016. "The Renminbi Central Parity: An Empirical Investigation," Working Papers 102016, Hong Kong Institute for Monetary Research.
    12. Yin-Wong Cheung & Cho-Hoi Hui & Andrew Tsang, 2016. "The Renminbi Central Parity: An Empirical Investigation," Working Papers 102016, Hong Kong Institute for Monetary Research.
    13. Yan-Hong Yang & Ying-Hui Shao, 2019. "Time-dependent lead-lag relationships between the VIX and VIX futures markets," Papers 1910.13729, arXiv.org.
    14. Wang, Xuan & Guo, Kun & Lu, Xiaolin, 2016. "The long-run dynamic relationship between exchange rate and its attention index: Based on DCCA and TOP method," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 453(C), pages 108-115.
    15. Eraslan, Sercan, 2017. "Asymmetric arbitrage trading on offshore and onshore renminbi markets," Discussion Papers 13/2017, Deutsche Bundesbank.
    16. Sercan Eraslan, 2019. "Asymmetric arbitrage trading on offshore and onshore renminbi markets," Empirical Economics, Springer, vol. 57(5), pages 1653-1675, November.
    17. Jiang, Tao & Bao, Si & Li, Long, 2019. "The linear and nonlinear lead–lag relationship among three SSE 50 Index markets: The index futures, 50ETF spot and options markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 525(C), pages 878-893.
    18. repec:zbw:bofitp:2017_007 is not listed on IDEAS
    19. Han, Liyan & Xu, Yang & Yin, Libo, 2018. "Forecasting the CNY-CNH pricing differential: The role of investor attention," Pacific-Basin Finance Journal, Elsevier, vol. 49(C), pages 232-247.
    20. Funke, Michael & Shu, Chang & Cheng, Xiaoqiang & Eraslan, Sercan, 2015. "Assessing the CNH–CNY pricing differential: Role of fundamentals, contagion and policy," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 245-262.
    21. Kunze, Frederik & Basse, Tobias & Wegener, Christoph & Spiwoks, Markus, 2018. "The emergence of the RMB: A "New Normal" for China's exchange rate system?," University of Göttingen Working Papers in Economics 348, University of Goettingen, Department of Economics.

    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1803.09432. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.