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TITLE:
Persistent Dependence in Foreign Exchange Rates? A Reexamination

AUTHOR(S):
John T. Barkoulas , Georgia Southern University
Christopher F. Baum, Boston College
Mustafa Caglayan, University of Leicester
Atreya Chakraborty, The Brattle Group

DOCUMENT TYPE: Article

ABSTRACT:
We test for stochastic long-memory behavior in the returns series of currency rates for eighteen industrial countries using a semiparametric fractional estimation method. A sensitivity analysis is also carried out to analyze the temporal stability of the long-memory parameter. Contrary to the findings of some previous studies alluding to the presence of long memory in major currency rates, our evidence provides wide support to the martingale model (and therefore for foreign exchange market efficiency) for our broader sample of foreign currency rates. Any inference of long-range dependence is fragile, especially for the major currency rates. However, long-memory dynamics are found in a small number of secondary (nonmajor) currency rates.

Publication Status: published as Chapter 10 of Global Financial Markets: Issues and Strategies, D.K. Ghosh and M. Ariff, eds., 2004, Praeger Publishers: Westport CT.