Episodic Nonlinearity in Leading Global Currencies |
| |
Authors: | Apostolos Serletis Anastasios G Malliaris Melvin J Hinich Periklis Gogas |
| |
Institution: | (1) Department of Economics, University of Calgary, Calgary, Canada;(2) Department of Economics, Loyola University of Chicago, Chicago, IL, USA;(3) Department of Government and Economics, The University of Texas at Austin, Austin, TX, USA;(4) Department of International Economic Relations and Development, Democritus University of Thrace, Komotini, Greece |
| |
Abstract: | We perform non-linearity tests using daily data for leading currencies that include the Australian dollar, British pound,
Brazilian real, Canadian dollar, euro, Japanese yen, Mexican peso, and the Swiss franc to resolve the issue of whether these
currencies are driven by fundamentals or exogenous shocks to the global economy. In particular, we use a new method of testing
for linear and nonlinear lead/lag relationships between time series, introduced by Brooks and Hinich (J Empir Finance 20:385–404,
1999), based on the concepts of cross-correlation and cross-bicorrelation. Our evidence points to a relatively rare episodic nonlinearity
within and across foreign exchange rates. We also test the validity of specifying ARCH-type error structures for foreign exchange
rates. In doing so, we estimate Bollerslev’s (J Econom 31:307–327, 1986) generalized ARCH (GARCH) model and Nelson’s (1988) exponential GARCH (EGARCH) model, using a variety of error densities including the normal, the Student-t distribution, and the Generalized Error Distribution (GED)] and a comprehensive set of diagnostic checks. We apply the Brooks
and Hinich (1999) nonlinearity test to the standardized residuals of the optimal GARCH/EGARCH model for each exchange rate series and show
that the nonlinearity in the exchange rates is not due to ARCH-type effects. This result has important implications for the
interpretation of the recent voluminous literature which attempts to model financial asset returns using this family of models. |
| |
Keywords: | |
本文献已被 SpringerLink 等数据库收录! |
|