Fractional integration and cointegration in stock prices and exchange rates
AbstractThis 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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Date of creation: 2010
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fractional cointegration; long memory; stock prices; exchange rates;
Other versions of this item:
- Marcel Aloy & Mohamed Boutahar & Karine Gente & Anne Péguin-feissolle, 2010. "Fractional integration and cointegration in stock prices and exchange rates," Economics Bulletin, AccessEcon, vol. 30(1), pages 115-129.
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
- F3 - International Economics - - International Finance
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