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Nonlinearities in the black market zloty-dollar exchange rate: some further evidence

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  • David McMillan
  • Alan Speight
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    Abstract

    This study reappraises the evidence for nonlinear dependence in the monthly black market exchange returns of the Polish zloty, 1955-1990. Predictive asymmetry is reported in conditional variance such that depreciatory shocks have a greater impact on subsequent volatility than appreciatory shocks, jointly with conditional mean nonlinearity of smooth transition between regimes which suggests a simple trading strategy capable of generating positive profit over the sample period. However, support is also found for a competing variance in mean model consistent with a time varying risk premium that is able to rationalize the presence of unexploited profit opportunities, particularly over the latter half of the sample.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/096031001750071604
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 11 (2001)
    Issue (Month): 2 ()
    Pages: 209-220

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    Handle: RePEc:taf:apfiec:v:11:y:2001:i:2:p:209-220

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    Cited by:
    1. K.P. Lim & M.J. Hinich & K.S. Liew, 2003. "GARCH Diagnosis with Portmanteau Bicorrelation Test: An Application on the Malaysia's Stock Market," Finance 0307013, EconWPA.
    2. Yasemin Ulu, 2005. "Out-of-sample forecasting performance of the QGARCH model," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 1(6), pages 387-392, November.
    3. Rodrigo Aranda & Patricio Jaramillo, 2008. "Nonlinear Dynamic in the Chilean Stock Market: Evidence from Returns and Trading Volume," Working Papers Central Bank of Chile 463, Central Bank of Chile.
    4. Rodrigo F. Aranda L. & Patricio Jaramillo G., 2010. "Non-linear Dynamics in the Chilean Stock Market: Evidence on Traded Volumes and Returns," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 13(3), pages 67-94, December.
    5. Emekter, Riza & Jirasakuldech, Benjamas & Snaith, Sean M., 2009. "Nonlinear dynamics in foreign exchange excess returns: Tests of asymmetry," Journal of Multinational Financial Management, Elsevier, vol. 19(3), pages 179-192, July.
    6. Kian-Ping Lim & Venus Khim-Sen Liew & Hock-Tsen Wong, 2003. "Weak-form Efficient Market Hypothesis, Behavioural Finance and Episodic Transient Dependencies: The Case of the Kuala Lumpur Stock Exchange," Finance 0312012, EconWPA.
    7. Kian-Ping Lim & M. Azali & M.S. Habibullah & Venus Khim-Sen Liew, 2003. "Are Non-Linear Dynamics a Universal Occurrence? Further Evidence From Asian Stock Markets," Finance 0308001, EconWPA.
    8. Tronzano, Marco, 2009. "Assessing the Volatility of the Euro on Foreign Exchange Markets: Further Empirical Evidence and Policy Implications," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 62(1), pages 103-131.

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