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Random walk hypothesis in exchange rate reconsidered

✍ Scribed by Chia-Shang J. Chu; Hsin-Min Lu

Publisher: John Wiley and Sons
Year: 2006
Tongue: English
Weight: 203 KB
Volume: 25
Category: Article
ISSN: 0277-6693
DOI: 10.1002/for.988

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✦ Synopsis

Abstract

An econometric model for exchange rate based on the behavior of dynamic international asset allocation is considered. The capital movement intensity index is constructed from the adjustment of a fully hedged international portfolio. Including this index as an additional explanatory variable helps to explain the fluctuation of the exchange rate and predict better than the competing random walk model. Supporting empirical evidence is found in Germany–USA, Japan–USA, Singapore–USA and Taiwan–USA exchange markets. Copyright © 2006 John Wiley & Sons, Ltd.

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