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Cointegration and exchange market efficiency. An analysis of high frequency data.

Trapletti, Adrian and Geyer, Alois and Leisch, Friedrich (1999) Cointegration and exchange market efficiency. An analysis of high frequency data. Working Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science", 52. SFB Adaptive Information Systems and Modelling in Economics and Management Science, WU Vienna University of Economics and Business, Vienna.

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Abstract

A cointegration analysis on a triangle of high frequency exchange rates is presented. Market efficiency requires the triangle to be cointegrated and the cointegration term to be a martingale difference sequence. We find empirical evidence against market efficiency for very short time horizons: The cointegration term does not behave like a martingale difference sequence. In an out-of-sample forecasting study the cointegrated vector autoregressive (VAR) model is found to be superior to the naive martingale. Finally, a simple trading strategy shows that the VAR also has a significant forecast value in economic terms even after accounting for transaction costs. (author's abstract)

Item Type: Paper
Keywords: cointegration / exchange rates / high frequency data / market efficiency
Classification Codes: JEL C32, F31, G14
Divisions: Departments > Finance, Accounting and Statistics > Statistics and Mathematics
Departments > Informationsverarbeitung u Prozessmanag. > Informationswirtschaft
Departments > Informationsverarbeitung u Prozessmanag. > Produktionsmanagement > Taudes
Departments > Marketing > Service Marketing und Tourismus
Depositing User: Repository Administrator
Date Deposited: 05 Mar 2002 18:37
Last Modified: 01 Aug 2014 18:51
URI: http://epub.wu.ac.at/id/eprint/1346

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