A fractional cointegration approach to testing mean reversion between spot and forward exchange rates: a case of high frequency data with low frequency dynamics
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The issue of whether foreign exchange markets process information efficiently (at least in a speculative, weak sense) has been a topic of renewed attention by empirical analysts in the fields of international finance, international economics and futures markets (see, inter alia, Hakkio and Rush, 1989; Macdonald and Taylor, 1989; Copeland, 1991; Lai and Lai, 1991; Tronzano, 1992; and Karfakis and Moschos, 1994) in a bivariate context, and Coleman, 1990; Alexander and Johnson, 1992; Baillie and Bollerslev, 1989; and Karfakis and Parikh, 1994; in a multivariate context). One of the reasons underlying the regeneration of interest in testing the efficient markets hypothesis (EMH) has, to a large extent, been fuelled by the development of sophisticated and practical time-series techniques which essentially aim to uncover important insights into the mechanics of how and to what extent asset prices fully reflect available information or otherwise whether there are untapped profitable opportunities that still remain.
Efficiency , Spot/forward exchange rates , Fractional differencing , Fractional cointegration , Low frequency dynamics
Mohammed Masih, Abul Mansur and Masih, Rumi. (1998). A fractional cointegration approach to testing mean reversion between spot and forward exchange rates: a case of high frequency data with low frequency dynamics. Journal of Business Finance and Accounting, 25 (7-8), pp. 987-1003.
John Wiley & Sons