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A reexamination of fractional integrating dynamics in foreign currency markets

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  • Jin, Hyun J.
  • Elder, John
  • Koo, Won W.

Abstract

This paper reexamines foreign currency markets for evidence of fractional integration, and extends the extant literature in several important dimensions. First, we utilize a new semiparametric wavelet-based estimator, which is far superior to the more prevalent GPH estimator on the basis of mean squared error. Second, we utilize a broader and longer sample, which better facilitates the detection of long memory dynamics. Our analysis yields interesting empirical results that contrast with other recent studies. In particular, we find new evidence that a large proportion (fourteen out of nineteen) of exchange rate series display evidence of long memory, with little variation over alternative sample periods.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 15 (2006)
Issue (Month): 1 ()
Pages: 120-135

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Handle: RePEc:eee:reveco:v:15:y:2006:i:1:p:120-135

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Web page: http://www.elsevier.com/locate/inca/620165

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  1. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, Elsevier, vol. 54(1-3), pages 159-178.
  2. Baillie, Richard T & Bollerslev, Tim, 1994. " Cointegration, Fractional Cointegration, and Exchange Rate Dynamics," Journal of Finance, American Finance Association, American Finance Association, vol. 49(2), pages 737-45, June.
  3. John T. Barkoulas & Christopher F. Baum & Mustafa Caglayan & Atreya Chakraborty, 1998. "Persistent Dependence in Foreign Exchange Rates? A Reexamination," Boston College Working Papers in Economics 377, Boston College Department of Economics, revised 21 Apr 2000.
  4. Tkacz Greg, 2001. "Estimating the Fractional Order of Integration of Interest Rates Using a Wavelet OLS Estimator," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 5(1), pages 1-15, April.
  5. Mark J. Jensen, 1997. "Using Wavelets to Obtain a Consistent Ordinary Least Squares Estimator of the Long Memory Parameter," Econometrics, EconWPA 9710002, EconWPA.
  6. Cheung, Yin-Wong, 1993. "Long Memory in Foreign-Exchange Rates," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 11(1), pages 93-101, January.
  7. Papell, David H., 2002. "The great appreciation, the great depreciation, and the purchasing power parity hypothesis," Journal of International Economics, Elsevier, vol. 57(1), pages 51-82, June.
  8. Sowell, Fallaw, 1992. "Maximum likelihood estimation of stationary univariate fractionally integrated time series models," Journal of Econometrics, Elsevier, Elsevier, vol. 53(1-3), pages 165-188.
  9. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 1057-72, June.
  10. Breidt, F. Jay & Crato, Nuno & de Lima, Pedro, 1998. "The detection and estimation of long memory in stochastic volatility," Journal of Econometrics, Elsevier, Elsevier, vol. 83(1-2), pages 325-348.
  11. Baillie, Richard T & Bollerslev, Tim, 1989. " Common Stochastic Trends in a System of Exchange Rates," Journal of Finance, American Finance Association, American Finance Association, vol. 44(1), pages 167-81, March.
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Cited by:
  1. In, Francis & Kim, Sangbae, 2006. "Multiscale hedge ratio between the Australian stock and futures markets: Evidence from wavelet analysis," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 16(4), pages 411-423, October.
  2. Jin, Hyun Joung, 2008. "A Long Memory Conditional Variance Model for International Grain Markets," Journal of Rural Development/Nongchon-Gyeongje, Korea Rural Economic Institute, vol. 31(2), May.
  3. Mejra Festic & Alenka Kavkler & Silvo Dajcman, 2012. "Long memory in the Croatian and Hungarian stock market returns," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 30(1), pages 115-139.

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