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Discrete Dynamics in Nature and Society
Volume 4, Issue 1, Pages 1-20
http://dx.doi.org/10.1155/S1026022600000017

Long-term dependence in exchange rates

1Warwick Business School, University of Warwick, Coventry CV47AL, UK
2Department of Computer Engineering & Informatics, University of Patras, Patras 26500, Greece

Received 4 February 1999

Copyright © 2000 Hindawi Publishing Corporation. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

The extent to which exchange rates of four major currencies against the Greek Drachma exhibit long-term dependence is investigated using a R/S analysis testing framework. We show that both classic R/S analysis and the modified R/S statistic if enhanced by bootstrapping techniques can be proven very reliable tools to this end. Our findings support persistence and long-term dependence with non-periodic cycles for the Deutsche Mark and the French Franc series. In addition a noisy chaos explanation is favored over fractional Brownian motion. On the contrary, the US Dollar and British Pound were found to exhibit a much more random behavior and lack of any long-term structure.