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    Testing for Neglected Nonlinearity in Weekly Foreign Exchange Rates

    Access Status
    Fulltext not available
    Authors
    Sadique, Shibley
    Date
    2011
    Type
    Journal Article
    
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    Citation
    Sadique, S. 2011. Testing for Neglected Nonlinearity in Weekly Foreign Exchange Rates. Review of Economics and Finance. 1: pp. 77-88.
    Source Title
    Review of Economics and Finance
    Additional URLs
    http://econpapers.repec.org/article/bapjournl/110306.htm
    School
    Curtin Malaysia
    URI
    http://hdl.handle.net/20.500.11937/57653
    Collection
    • Curtin Research Publications
    Abstract

    This study investigates the presence of neglected nonlinearity in weekly exchange rates of five countries in terms of Australian dollar. Three prominent nonlinear models from the ARCH family, such as the EGARCH, GARCH-M and EGARCH-M are fitted to the first differenced log of exchange rate series. The logs of the squared standardized residuals from the fitted models are tested for any leftover nonlinear structure using the BDS test. The nature of the leftover nonlinear dependence is identified using the Odd Product Moment Test of Hsieh (1991). Overall, the empirical evidence obtained in this study support the claim that the ARCH-type models cannot capture all the nonlinearities in financial asset returns.

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