Mean reversion behavior of the returns on currency assets

Using the variance ratio and the regression test, we examine whether there exist a random walk component and a transitory component in the returns on currency assets and real exchange rates. The test results have shown that both the returns on currency assets and real exchange rates exhibit a random...

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Bibliographic Details
Published in:International review of economics & finance 1998, Vol.7 (2), p.185-200
Main Authors: Chen, Son-Nan, Jeon, Kisuk
Format: Article
Language:English
Subjects:
American dollar
Currencies
Currency
Foreign exchange markets
Foreign exchange rates
Hypotheses
International finance
Investments
Prices
Purchasing power parity
Random walk theory
Rates of return
Regression analysis
Stock prices
Variance analysis
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Summary:Using the variance ratio and the regression test, we examine whether there exist a random walk component and a transitory component in the returns on currency assets and real exchange rates. The test results have shown that both the returns on currency assets and real exchange rates exhibit a random walk component and a transitory component, and thereby indicating mean-reverting behavior. Possible economic interpretations are provided.
ISSN:1059-0560
1873-8036
DOI:10.1016/S1059-0560(98)90039-9