Hostname: page-component-cd9895bd7-hc48f Total loading time: 0 Render date: 2024-12-25T07:49:11.240Z Has data issue: false hasContentIssue false
  • English
  • Français

Unit Roots Tests: Evidence from the Foreign Exchange Futures Market

Published online by Cambridge University Press:  06 April 2009

John Doukas  and
Abdul Rahman
Get access Rights & Permissions [Opens in a new window]

Abstract

In this paper, tests are conducted for the presence of unit roots in the autoregression representation of foreign exchange currency futures price series. The results obtained from five different currency futures over the 1977–1983 period suggestthat foreign currency futures rates have autoregressive representations with a singleunit root (i.e., borderline nonstationarity). In view of this result, it appears thatthe process generating the natural logarithm of foreign currency futures rates may well be approximated by random walks.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 22 , Issue 1 , March 1987 , pp. 101 - 108
Copyright
Copyright © School of Business Administration, University of Washington 1987

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Anderson, R. W. “The Determinants of Volatility of Futures Prices”. Working Paper no. CS FM-3, New York: Columbia Univ. (1982).Google Scholar
[2]Cornell, B., and Reinganum, M. R.. “Forward and Futures Prices: Evidence from the Foreign Exchange Markets”. Journal of Finance, 36 (12 1981), 1035–1045.CrossRefGoogle Scholar
[3]Dale, C., Jr. “The Hedging Effectiveness of Currency Futures Markets”. Journal of Futures Markets, 1 (Spring 1981), 77–88.CrossRefGoogle Scholar
[4]Denis, J., Jr. “How Well Does the International Monetary Market Track the Interbank Forward Market?” Financial Analysts Journal, 32 (01–02 1976), 50–54.CrossRefGoogle Scholar
[5]Dickey, D. A., and Fuller, W. A.. “Distribution of the Estimators for Autoregressive Time Series with a Unit Root”. Journal of the American Statistical Association, 74 (06 1979) 427–431.Google Scholar
[6]Dickey, D.A., and Fuller, W. A.. “Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root”. Econometrica, 49 (07 1981), 1057–1072.CrossRefGoogle Scholar
[7]Eaker, M. R., and Grant, D.. “Cross-Hedging Foreign Currency Risk”. Presented at the Financial Management Assoc., Toronto, Canada (10 1984).Google Scholar
[8]Evans, G. B. A., and Savin, N. E.. “Testing for Unit Roots: 1”. Econometrica, 49 (05 1981), 753–779.CrossRefGoogle Scholar
[9]Evans, G. B. A., and Savin, N. E.. “Testing for Unit Roots: 2”. Econometrica, 54 (09 1984), 1241–1269.CrossRefGoogle Scholar
[10]Frenkel, J. A. “Flexible Exchange Rates, Prices, and the Role of ‘News’: Lessons-from the 1970s”. Journal of Political Economy, 89 (08 1981), 665–705.CrossRefGoogle Scholar
[11]Fuller, W. A.Introduction to Statistical Time Series. New York: John Wiley & Sons (1976).Google Scholar
[12]Grenander, V. “On the Estimation of Regression Coefficients in Case of an Autocorrelated Disturbance”. Annals of Mathematical Statistics, 25 (03 1954), 25–272.CrossRefGoogle Scholar
[13]Hansen, L. P., and Hodrick, R. J.. “Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An EconometricAnalysis”. Journal of Political Economy, 88 (10 1980), 829–853.CrossRefGoogle Scholar
[14]Hansen, L. P., and Sargent, T.. “Methods for Formulating and Estimating Linear Rational Expectations Models of Dynamic Demand for Production Inputs: The Single Factor Case”. Working Paper, Carnegie–Mellon Univ. (1979).Google Scholar
[15]Hasza, D. P., and Fuller, W. A.. “Estimating for Autoregressive Processes with Unit Roots”. Annals of Statistics, 7 (09 1979), 1106–1120.CrossRefGoogle Scholar
[16]Hill, J., and Schneeweis, T.. “ANote in the Hedging Effectiveness of Foreign Currency Futures”. Journal of Futures Markets, 1 (Winter 1981), 659–684.CrossRefGoogle Scholar
[17]Hill, J., and Schneeweis, T.. “The Hedging Effectiveness of Foreign Currency Futures”. Journal of Financial Research, 5 (Spring 1982), 95–104.CrossRefGoogle Scholar
[18]Meese, R. A., and Singleton, K. J.. “On Unit Roots and the Empirical Modeling of Exchange Rates”. Journal of Finance, 37 (09 1982), 1029–1035.CrossRefGoogle Scholar
[19]Mussa, M. “ Empirical Regularities in the Behavior of Exchange Rates and Theories of the Foreign Exchange Market ”. InPolicies for Employment, Prices, and Exchange Rates, Brunner, K. and Meltzer, A., eds. Carnegie–Rochester Conference Vol. II, New York and Amsterdam: North Holland(1979).Google Scholar
[20]Panton, D. B., and Joy, M.. “Empirical Evidence on International Monetary Market Currency Futures”. Journal of International Business Studies, 9(Fall 1978), 59–68.CrossRefGoogle Scholar
[21]Park, H. Y., and Chen, A. H.. “Differences between Futures and Forward Prices: A Further Investigation of the Marking–to–Market Effects”. Journal of Futures Markets, 5(Spring 1985), 77–88.CrossRefGoogle Scholar
[22]Roll, R. “Orange Juice and Weather”. American Economic Review, 74 (12 1984), 861–880.Google Scholar
[23]Shiller, R. J. “Rational Expectations and the Dynamic Structure of Macroeconomic Models: A Critical Review”. Journal of Monetary Economics, 4 (01 1978), 1–44.CrossRefGoogle Scholar
[24]Scholes, M., and Williams, J.. “Estimating Betas from Nonsynchronous Data”. Journal of Financial Economics, 5 (12 1977), 309–327.CrossRefGoogle Scholar
[25]Tjostheim, D., and Paulsen, J.. “Least Squares Estimates and Order Determination Procedures for Autoregressive Processes with a Time Dependent Variance”. Journal of Time Series Analysis, 6, No. 2 (1985), 117–133.CrossRefGoogle Scholar
[26]Working, H. “Futures Trading and Hedging”. American Economic Review, 43 (06 1953), 314–343.Google Scholar