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Marcel Aloy, Mohamed Boutahar, Karine Gente and Anne Péguin-feissolle
''Fractional integration and cointegration in stock prices and exchange rates''
( 2010, Vol. 30 No.1 )
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.
Keywords: fractional cointegration, long memory, stock prices, exchange rates
JEL: C3 - Time-Series Models
F3 - International Finance: General
Manuscript Received : Oct 23 2009 Manuscript Accepted : Jan 11 2010

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