CAN LONG HORIZON DATA BEAT RANDOM WALK UNDER ENGEL-WEST EXPLANATION?

Jian Wang
Additional contact information
Jian Wang: University of Wisconsin, Madison

International Finance from University Library of Munich, Germany

Abstract: Engel and West (2004a) provide an explanation to reconcile the random walk behavior of exchange rate and linear present value asset pricing models. In this paper, we study the long horizon property of exchange rate under Engel-West explanation. It is found that the long horizon data can not significantly improve our chance of beating random walk. This result is consistent with recent empirical studies on the long horizon exchange rate. Under E-W explanation, the change of exchange rate can be more serially correlated in the long horizon data, but this change in most cases is only marginal. Depending on the persistence of change in fundamentals, two patterns may exist between the autocorrelation of exchange rate change and the time horizon. Both of these two patterns are found existing in the real data of exchange rates. These results support E-W explanation for exchange rate puzzle.

Keywords: Foreign exchange rate; present-value models; exchange rate and fundamentals; random walk (search for similar items in EconPapers)
JEL-codes: F31 F41 G12 G15 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2005-01-25
New Economics Papers: this item is included in nep-fin and nep-ifn
Note: Type of Document - pdf; pages: 32
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/if/papers/0501/0501002.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpif:0501002

Access Statistics for this paper

More papers in International Finance from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).