On Cointegration and Exchange Rate Dynamics

Francis Diebold, Javier Gardeazabal and Kamil Yilmaz ()

Journal of Finance, 1994, vol. 49, issue 2, 727-35

Abstract: Richard T. Baillie and Tim Bollerslev (1989) have recently argued that nominal dollar spot exchange rates are cointegrated. Here the authors examine an immediate implication of their finding, namely, that cointegration implies an error-correction representation yielding forecasts superior to those from a martingale benchmark in light of a large earlier literature highlighting the predictive superiority of the martingale. In an out-of-sample forecasting exercise, the authors find the martingale model to be superior. They then perform a battery of improved cointegration tests and find that the evidence for cointegration is much less strong than previously thought, a result consistent with the outcome of the forecasting exercise. Copyright 1994 by American Finance Association.

Date: 1994
References: Add references at CitEc
Citations: View citations in EconPapers (137)

Downloads: (external link)
http://links.jstor.org/sici?sici=0022-1082%2819940 ... O%3B2-0&origin=repec full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
Working Paper: On cointegration and exchange rate dynamics (1993)
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:bla:jfinan:v:49:y:1994:i:2:p:727-35

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().