Introducing False EUR and False EUR exchange rates

Marcel Ausloos and K Ivanova

Physica A: Statistical Mechanics and its Applications, 2000, vol. 286, issue 1, 353-366

Abstract: The Euro (EUR) is a new currency introduced by the European Community. Its exchange rate is very puzzling. We have invented a false Euro (FEUR) dating back to 1993 and have derived the exchange rates of the FEUR with respect to currencies not belonging to the EUR, i.e., DKK,CHF,JPY and USD. This allows us to search for correlations between the fluctuations preexisting to the introduction of EUR and present ones in such financial data. The detrended fluctuation analysis (DFA) statistical method is used. This leads to assume a power-law behavior, i.e., a scaling hypothesis, through an exponent α. The latter has demonstrated its usefulness for the investigations of long-range power-law correlations in several types of financial sequences. Our findings show that the α exponent interestingly characterizes fractional Brownian motion of the currency exchange rates between EUR and DKK over a 25 day interval, and usual Brownian motion otherwise and for the three other investigated exchange rates. We can devise an investment strategy based on the localα technique and obtain appreciable gains for the time being.

Keywords: Econophysics; Detrended fluctuation analysis; Foreign currency exchange rate; Euro; Hurst exponent; Scaling hypothesis (search for similar items in EconPapers)
Date: 2000
References: View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:286:y:2000:i:1:p:353-366

DOI: 10.1016/S0378-4371(00)00328-9

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