Nonlinearities in the black market zloty-dollar exchange rate: some further evidence

David McMillan and Alan Speight

Applied Financial Economics, 2001, vol. 11, issue 2, 209-220

Abstract: This study reappraises the evidence for nonlinear dependence in the monthly black market exchange returns of the Polish zloty, 1955-1990. Predictive asymmetry is reported in conditional variance such that depreciatory shocks have a greater impact on subsequent volatility than appreciatory shocks, jointly with conditional mean nonlinearity of smooth transition between regimes which suggests a simple trading strategy capable of generating positive profit over the sample period. However, support is also found for a competing variance in mean model consistent with a time varying risk premium that is able to rationalize the presence of unexploited profit opportunities, particularly over the latter half of the sample.

Date: 2001
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DOI: 10.1080/096031001750071604

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