VOLUME VI
SPRING 1998

SHORT TERM REGULARITIES IN THE PESETA EXCHANGE RATE
 
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).
 
Keywords: exchange rates, random walk, non linearities.

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