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Introducing False EUR and False EUR exchange rates

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  • Ausloos, M
  • Ivanova, K

Abstract

The Euro (EUR) is a new currency introduced by the European Community. Its exchange rate is very puzzling. We have invented a false Euro (FEUR) dating back to 1993 and have derived the exchange rates of the FEUR with respect to currencies not belonging to the EUR, i.e., DKK,CHF,JPY and USD. This allows us to search for correlations between the fluctuations preexisting to the introduction of EUR and present ones in such financial data. The detrended fluctuation analysis (DFA) statistical method is used. This leads to assume a power-law behavior, i.e., a scaling hypothesis, through an exponent α. The latter has demonstrated its usefulness for the investigations of long-range power-law correlations in several types of financial sequences. Our findings show that the α exponent interestingly characterizes fractional Brownian motion of the currency exchange rates between EUR and DKK over a 25 day interval, and usual Brownian motion otherwise and for the three other investigated exchange rates. We can devise an investment strategy based on the localα technique and obtain appreciable gains for the time being.

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Bibliographic Info

Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

Volume (Year): 286 (2000)
Issue (Month): 1 ()
Pages: 353-366

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Handle: RePEc:eee:phsmap:v:286:y:2000:i:1:p:353-366

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Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

Related research

Keywords: Econophysics; Detrended fluctuation analysis; Foreign currency exchange rate; Euro; Hurst exponent; Scaling hypothesis;

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Cited by:
  1. Mariani, M.C. & Florescu, I. & Beccar Varela, M.P. & Ncheuguim, E., 2010. "Study of memory effects in international market indices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(8), pages 1653-1664.
  2. Raul Matsushita & Andre Santos & Iram Gleria & Annibal Figueiredo & Sergio Da Silva, 2005. "Are Pound and Euro the Same Currency?," International Finance 0505002, EconWPA.
  3. Matsushita, Raul & Gleria, Iram & Figueiredo, Annibal & Da Silva, Sergio, 2007. "Are Pound and Euro the Same Currency? - Updated," MPRA Paper 1981, University Library of Munich, Germany.
  4. Sergio Da Silva, 2004. "International Finance, Levy Distributions, and the Econophysics of Exchange Rates," International Finance 0405018, EconWPA.
  5. Mariani, M.C. & Libbin, J.D. & Kumar Mani, V. & Beccar Varela, M.P. & Erickson, C.A. & Valles-Rosales, D.J., 2008. "Long correlations and Normalized Truncated Levy Models applied to the study of Indian Market Indices in comparison with other emerging markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(5), pages 1273-1282.
  6. Matsushita, Raul & Gleria, Iram & Figueiredo, Annibal & Rathie, Pushpa & Da Silva, Sergio, 2004. "Exponentially damped Lévy flights, multiscaling, and exchange rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 333(C), pages 353-369.
  7. Orłowski, A. & Struzik, Z.R. & Syczewska, E. & Załuska-Kotur, M.A., 2004. "Fluctuation dynamics of exchange rates on Polish financial market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 344(1), pages 184-189.
  8. Wang, Dong-Hua & Yu, Xiao-Wen & Suo, Yuan-Yuan, 2012. "Statistical properties of the yuan exchange rate index," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(12), pages 3503-3512.
  9. Siqueira, Erinaldo Leite & Stošić, Tatijana & Bejan, Lucian & Stošić, Borko, 2010. "Correlations and cross-correlations in the Brazilian agrarian commodities and stocks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(14), pages 2739-2743.

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