VOLUME VI
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SPRING 1998
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SHORT TERM REGULARITIES IN THE PESETA EXCHANGE RATE
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CRISTINA DEL RÍO
RAFAEL SANTAMARÍA Universidad Pública de Navarra |
This paper explores the short term regularities in the Peseta/U.S. Dollar and Peseta/Deutsche Mark time series. More specifically the existence of components in the mean is analysed, given that these can be a potential source of predictability of foreign exchange rates. Thus, we follow a sequential strategy of testing. First, we test the hypothesis of independent and identically distribution (iid) using the BDS test. Such a hypothesis is clearly rejected and, therefore, different causes are analysed: structural changes, autocorrelation, daily seasonality and non-linearity in the mean. The presence of daily seasonality, in the Peseta/U.S. Dollar, and significant serial correlation, in the Peseta/Deutsche Mark, are detected. In both time series we find evidence of non-linearities over all sample periods, although using the third order moment test we cannot reject the null hypothesis (non-linearity in the variance).
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Keywords: exchange rates, random walk, non linearities.
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