Extreme Co-movements And Tail Dependence Of CNY Exchange Rate

extreme co-movemonts and extreme shock problems are stochastic control problems in nature,as they will influence decisions made today and ultimately future decisions.Extreme co-movements between financial assets have been reported in the literature.However,the extreme effects have not been carefully studied,especially by CNY against foreign currencies.In this paper,we discuss extreme co-movemonts and tail dependence of financial markets,four spot exchange rates are studied.The samples studied in this paper are the central parity of exchange rates of four foreign currencies,namely USD/CNY,EUR/CNY,JPY/CNY and HKD/CNY.First,the data were processed: the return residual was obtained by fitting the generalized autoregressive-conditional heteroscedasticity(GARCH)model,and the data exceeding the threshold was fitted with the generalized Pareto distribution(GPD),which was then transformed into the unit Fréchet distribution.Then the tail interdependence test is conducted to verify whether there is tail coordinated movement between different foreign exchange.The conclusion is that for two exchange rates on the same day,when the returns of both exchange rates are negative,there is a very obvious tail coordinated movement.When the returns of both exchange rates are positive,tail synergy movement also exists,but it is not very significant.When the exchange rate with positive returns on the same day and the other exchange rate with negative returns on the same day is analyzed,there is no tail synergy movement,that is,tail independence,and vice versa.The returns of the exchange rate on the day and those of other exchange rates lagging by one day did not pass the test,that is to say,there was no tail coordinated movement,and the same is true with the lag of two days.Finally,the tail dependence of the four foreign exchange currencies is studied.It is found that the negative returns of the four foreign exchange currencies always have tail lag dependence,that is,the data with a lag of four days have a significant impact on the day.In terms of positive returns,the extreme impact of USD/CNY lasted basically two days;CNY positive gains against EUR lasted longer,about three days;CNY also continued against JPY yen and HKD for about two days.In general,the day for any currency earnings of positive and negative earnings are affected by lagging behind the tail data,but impact duration is different,in the case of negative earnings in the day,lag of four days or more after a few days all have significant effects on its,in the case of positive earnings for the day only lag about two day’s data has a significant effect on the day.