A Fractional Cointegration Approach to Testing Mean Reversion Between Spot and Forward Exchange Rates: A Case of High Frequency Data with Low Frequency Dynamics

Abul Masih and Rumi Masih

Journal of Business Finance & Accounting, 1998, vol. 25, issue 7‐8, 987-1003

Abstract: This paper applies a relatively new but generalised concept of fractional cointegration to shed some light on the validity of a long‐run relationship between high frequency daily spot and the lagged forward Australian‐US dollar exchange rate. An investigation of the stochastic properties of these rates reveals that, while the relationship is not cointegrated in their logs, they appear to be fractionally cointegrated if we allow for mean reverting processes that are CI(1, d) with 0

Date: 1998
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