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Fractional integration and cointegration in stock prices and exchange rates

Author

Listed:
  • Marcel Aloy

    () (DEFI, Université de la Méditerranée, France)

  • Mohamed Boutahar

    () (GREQAM, Université de la Méditerranée, France)

  • Karine Gente

    () (DEFI, Université de la Méditerranée, France)

  • Anne Péguin-feissolle

    () (GREQAM, CNRS, France)

Abstract

This 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.

Suggested Citation

  • 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.
  • Handle: RePEc:ebl:ecbull:eb-09-00644
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    References listed on IDEAS

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    Cited by:

    1. West, Kenneth D., 2012. "Econometric analysis of present value models when the discount factor is near one," Journal of Econometrics, Elsevier, vol. 171(1), pages 86-97.

    More about this item

    Keywords

    fractional cointegration; long memory; stock prices; exchange rates;

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • F3 - International Economics - - International Finance

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