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

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  • David McMillan
  • Alan Speight

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.

Suggested Citation

  • David McMillan & Alan Speight, 2001. "Nonlinearities in the black market zloty-dollar exchange rate: some further evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 11(2), pages 209-220.
  • Handle: RePEc:taf:apfiec:v:11:y:2001:i:2:p:209-220
    DOI: 10.1080/096031001750071604
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    Citations

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    Cited by:

    1. 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.
    2. 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.
    3. Ferit Kula & Alper Aslan & Ýlhan Öztürk, 2014. "Long Run Tendencies and Short Run Adjustments Between Official and Black Market Exchange Rates in MENA Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 4(3), pages 494-500.
    4. 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.
    5. 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 Industria Artigianato Agricoltura di Genova, vol. 62(1), pages 103-131.
    6. 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.
    7. 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.
    8. 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.
    9. 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.

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