Title

Nonlinear Dynamics In Foreign Exchange Excess Returns: Tests Of Asymmetry

Keywords

Asymmetry; Exchange rate; Nonlinear dynamics

Abstract

This paper examines the nonlinear dynamic behaviors in foreign exchange excess returns of eight currencies. We applied the BDS test and two other nonlinear statistical techniques, the Markov chain, and time reversibility tests to characterize the exchange rate returns dynamics. The results from the BDS test provide strong evidence of nonlinear dependence on the British pound, the Singapore dollar, the South African rand, and the Swedish krone. The Markov chain test shows evidence of a non-random walk and positive serial dependence in all currencies except for the British pound, the Canadian dollar, and the Swiss franc. Lastly, evidence of time irreversible and asymmetric dynamic behavior is found in seven currencies with the exception of the Canadian dollar. The results indicate that the asymmetry in the Singapore dollar, the South African rand, and the Swiss franc is due to nonlinearity in the functional form as opposed to non-Gaussian innovations. © 2008 Elsevier B.V. All rights reserved.

Publication Date

7-1-2009

Publication Title

Journal of Multinational Financial Management

Volume

19

Issue

3

Number of Pages

179-192

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1016/j.mulfin.2008.11.001

Socpus ID

67349217141 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/67349217141

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