Fractional integration and cointegration in stock prices and exchange rates

Marcel Aloy (1) , Mohamed Boutahar (2) , Karine Gente (1) , Anne Peguin-Feissolle (2)

1 DEFI - Centre de recherche en développement économique et finance internationale
2 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille

This paper examines the relationships between the CAC40 index, the Dow Jones index and the Euro/USD exchange rate using daily data over the period 1999-2008. We find that these variables are I(1) nonstationary series, but they are fractionally cointegrated: equilibrium errors exhibit slow mean reversion, responding slowly to shocks. Therefore, with regard to the recent empirical cointegration literature, taking into account fractional cointegration techniques appears as a promising way to study the long-run relationships between stock prices and exchange rates.

Mots clés: fractional cointegration; long memory; stock prices; exchange rates

Domaines: Economies et finances

Marcel Aloy, Mohamed Boutahar, Karine Gente, Anne Peguin-Feissolle. Fractional integration and cointegration in stock prices and exchange rates. 2010. ⟨halshs-00536140⟩