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An approximate entropy approach to examine the non-linear dependence in daily Indian exchange rates

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  • Manish Kumar
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    Abstract

    The purpose of the study is to examine whether the returns and volatility for Indian exchange rates possess non-linear dependence. Furthermore, an attempt is made through a rolling-window approach to check whether non-linear dependence is time-varying. The study employs approximate entropy statistics to examine the non-linear dependence. We also estimate the Tsay statistics to test for non-linearity. The empirical results provide the evidence of strong non-linear dependence in the Indian exchange rate returns and volatility and also that is time-varying. The results also suggest that the GARCH model, which has been used in the study, is misspecified. The evidence of non-linearity has serious implications for asset pricing, risk management and policy making.

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    Bibliographic Info

    Article provided by Inderscience Enterprises Ltd in its journal Int. J. of Monetary Economics and Finance.

    Volume (Year): 4 (2011)
    Issue (Month): 3 ()
    Pages: 309-325

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    Handle: RePEc:ids:ijmefi:v:4:y:2011:i:3:p:309-325

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    Web page: http://www.inderscience.com/browse/index.php?journalID=218

    Related research

    Keywords: exchange rates; ARIMA; GARCH; nonlinearity; approximate entropy; India; nonlinear dependence; asset pricing; risk management; policy making.;

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