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

Adrian Trapletti, Alois Geyer, Friedrich Leisch

Publikation: Working/Discussion PaperWU Working Paper

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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)
OriginalspracheEnglisch
ErscheinungsortVienna
HerausgeberSFB Adaptive Information Systems and Modelling in Economics and Management Science, WU Vienna University of Economics and Business
PublikationsstatusVeröffentlicht - 1999

Publikationsreihe

NameWorking Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science"
Nr.52

WU Working Paper Reihe

  • Working Papers SFB \Adaptive Information Systems and Modelling in Economics and Management Science\

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