 Investment intensity of currencies and the random walk hypothesis: Cross-currency evidenceTuugi Chuluun, Cheol S. Eun and Rehim Kiliç Journal of Banking & Finance, 2011, vol. 35, issue 2, 372-387 Abstract: This paper studies the cross-currency and temporal variations in the random walk behavior in exchange rates. We characterize currencies with relatively large investment flows as investment intensive and conjecture that the more investment intensive a currency is, the closer its exchange rate adheres to random walk. Using 29 floating bilateral USD exchange rates, we find that the higher the investment intensity, the less likely it is to reject random walk and the smaller the deviation from random walk is. However, the effect of investment intensity is non-monotonic. Application of threshold models shows that after investment intensity reaches the estimated thresholds, the level of investment intensity has no further effect on the deviation from random walk. These findings help reconcile the previous conflicting results on the random walk in exchange rates by focusing on the effect of cross-currency and temporal variations in investment intensity. Keywords: Exchange; rate; Random; walk; Investment; intensity; Variance; ratio (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:2:p:372-387 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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