This dissertation examines the time series properties of floating exchange rates during the 1920s. This study benefits from the use of high frequency daily data of spot and forward exchange rates and the application of recently developed econometric techniques. The currencies examined are the U.S. dollar, French franc, Belgian franc, Italian lira and the German mark, all quoted with respect to the Pound sterling. The data set covers a period of thirty-seven months from May 1, 1922 to May 30, 1925 for all the exchange rates except the German mark, for which observations end on July 24, 1923 A detailed analysis of the behavior of spot exchange rates is carried out by testing for three, two and one unit roots. There is evidence that all the spot exchange rates are characterized by a unit root and the German mark is characterized by a unit root with a drift. Further, diagnostic tests indicate that all the exchange rate series are heteroskedastic and exhibit high kurtosis. Therefore, there is evidence against the hypothesis that spot exchange rates follow a random walk. The analysis is extended by fitting ARCH and GARCH models to explain the volatility of the market at that time The forward market efficiency is examined by testing the simple unbiasedness hypothesis, i.e., the forward rate is an optimal predictor of the future spot rate under rational expectations and risk neutrality. This is followed with tests of orthogonality of the forecast errors to different information sets. In the above tests corrections are made for serial correlation and heteroskedasticity. A VAR model is also estimated and the cross equation restrictions tested using a Wald statistic. All the tests reject the null hypothesis of an efficient market We also test for cointegration of spot and forward rates of a country. In three of the five currencies we find that the spot and forward rates of a country are cointegrated, indicating that those markets were weakly efficient. Finally, cointegration across markets is examined using a multivariate test. In general we find that the markets were not integrated across countries except in the neighboring economies of France and Belgium / acase@tulane.edu
| Identifer | oai:union.ndltd.org:TULANE/oai:http://digitallibrary.tulane.edu/:tulane_27589 |
| Date | January 1992 |
| Contributors | Darbar, Salim Mohsin (Author), McMahon, Patrick C (Thesis advisor) |
| Publisher | Tulane University |
| Source Sets | Tulane University |
| Language | English |
| Detected Language | English |
| Rights | Access requires a license to the Dissertations and Theses (ProQuest) database., Copyright is in accordance with U.S. Copyright law |
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