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Common Stochastic Trends among Asian Currencies: Evidence for Japan, ASEANs, and the Asian Tigers

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  • Aggarwal, Raj
  • Mougoue, Mbodja

Abstract

This study documents that daily changes in Asian exchange rates are significantly non-normal, serially correlated, non-stationary, and have unit roots. Further, accounting for these time series properties and using a longer time horizon than other similar studies of exchange rates, this study also documents cointegration between the Japanese Yen and two sets of Asian currencies, i.e., currencies of the "Tigers," Hong Kong, South Korea, Singapore, and Taiwan; and currencies of the ASEANs, Malaysia, Philippines, Thailand, and Singapore. These findings of cointegration among Asian exchange rates are is contrast to the findings for the major currencies, and are evidence of nascent Yen blocs in Asia. The results presented here have important implications for understanding Asian financial integration and the international tale of the Japanese yen and should be useful for developing asset allocation, currency overlay, value as risk (VAR), and hedging strategies for investments in these often illiquid Asian currencies. Copyright 1998 by Kluwer Academic Publishers

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  • Aggarwal, Raj & Mougoue, Mbodja, 1998. "Common Stochastic Trends among Asian Currencies: Evidence for Japan, ASEANs, and the Asian Tigers," Review of Quantitative Finance and Accounting, Springer, vol. 10(2), pages 193-206, March.
    • Handle: RePEc:kap:rqfnac:v:10:y:1998:i:2:p:193-206
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    2. Patrick Wilson & Ralf Zurbruegg, 2003. "Trends and Spectral Response: An Examination of the US Realty Market," Centre for International Economic Studies Working Papers 2003-15, University of Adelaide, Centre for International Economic Studies.
    3. McCrae, Michael, et al, 2002. "Can Cointegration-Based Forecasting Outperform Univariate Models? An Application to Asian Exchange Rates," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 21(5), pages 355-380, August.
    4. Aggarwal, Raj & Montanes, Antonio & Ponz, Monserrat, 2000. "Evidence of long-run purchasing power parity: analysis of real asian exchange rates in terms of the Japanese yen," Japan and the World Economy, Elsevier, vol. 12(4), pages 351-361, December.

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