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Fractional integration and cointegration in stock prices and exchange rates

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Author Info

  • Marcel Aloy

    ()
    (DEFI, Université de la Méditerranée, France)

  • Mohamed Boutahar

    ()
    (GREQAM, Université de la Méditerranée, France)

  • Karine Gente

    ()
    (DEFI, Université de la Méditerranée, France)

  • Anne Péguin-feissolle

    ()
    (GREQAM, CNRS, France)

Abstract

This paper examines the relationships between the CAC40 index, the Dow Jones index and the Euro/USD exchange rate using daily data over the period 1999-2008. We find that these variables are I(1) nonstationary series, but they are fractionally cointegrated: equilibrium errors exhibit slow mean reversion, responding slowly to shocks. Therefore, with regard to the recent empirical cointegration literature, taking into account fractional cointegration techniques appears as a promising way to study the long-run relationships between stock prices and exchange rates.

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File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I1-P11.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 30 (2010)
Issue (Month): 1 ()
Pages: 115-129

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Handle: RePEc:ebl:ecbull:eb-09-00644

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Keywords: fractional cointegration; long memory; stock prices; exchange rates;

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Cited by:
  1. Kenneth D. West, 2012. "Econometric Analysis of Present Value Models When the Discount Factor Is near One," NBER Working Papers 18247, National Bureau of Economic Research, Inc.

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