Hamrita, Mohamed Essaied and Ben Abdallah, Nidhal and Ben Ammou, Samir (2009): The Multi-Scale Interaction between Interest Rate, Exchange Rate and Stock Price.
Download (196kB) | Preview
This paper examines the multi-scale relationship between the interest rate, exchange rate and stock price using wavelet transform. In particular, we apply the maximum overlap discrete wavelet transform (MODWT) to the interest rate, exchange rate and stock price for US over the period 1990:1- 2008:12 and using the definitions of wavelet variance, wavelet correlation and cross-correlations analyze the association as well as the lead/lag relationship between these series at the different time scales. Our results show that the relationship between interest rate and exchange rate is not significantly different from zero at all scales. On the other hand, the relationship between interest rate returns and stock index returns is significantly different zero only at the highest scales. The exchange rate returns and stock index returns have a relationship bidirectional in this period at longer horizons.
|Item Type:||MPRA Paper|
|Original Title:||The Multi-Scale Interaction between Interest Rate, Exchange Rate and Stock Price|
|Keywords:||Wavelet analysis, Interest rate, Stock price, Wavelet cross-correlation, Granger causality.|
|Subjects:||C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics
|Depositing User:||Mohamed. E Hamrita|
|Date Deposited:||08. Nov 2009 06:27|
|Last Modified:||15. Feb 2013 19:26|
Daubechies, I. (1992), “Ten Lectures on Wavelets”. Society for Industrial and Applied Mathematics.
Gallegati, Marco (2008), “Wavelet analysis of stock returns and aggregate economic activity” Computational statistics & Data Analysis, 52, 3061– 3074.
Genaçay, R, Selcuk, F & Whitcher, B. (2002), “An Introduction to Wavelets and Other Filtering Methods in Finance and Economics “. Academic Press, New York.
Hashemdah N. and Taylor P. (1988),”Stock prices, money supply and interest rates: The question of causality” Applied economics, 20, 1603-1611. Harvey A. (1981), “ The Econometric Analysis of Time Series “. Philip Allan.
Kim, S. and F. In (2003), “The relationship between financial variables and real economic activity: Evidence from spectral and wavelet analyses” Studies in Nonlinear Dynamics and Econometrics, 7(4), article 4.
Mok H. M. K. (1993), “Causality of interest rate, exchange rate and stock prices at stock market open and close in Hong Kong” Asia Pacific Journal Of Management, 10, 123-143.
Serroukh, A., Walden, A. T., and Percival, D. B. (2000), “Statistical Properties and Uses of the Wavelet Variance Estimator for the Scale Analysis of Time Series” Journal of the American Statistical Association, 95, 184-196.
Solnik B. (1987), “Using financial prices to test exchange rate models: A note” Journal of Finance 42, 141-149.
Percival, D.B & Walden, Andrew, T (2000), “Wavelet Methods for Time Series Analysis”. Cambridge University Press.
Percival, D. B. and Mofjeld, H. O. (1997), “Analysis of sub tidal coastal sea level fluctuations using wavelets” Journal of the American Statistical Association, 92, 868-880.
Ramsey, J.B., and Lampart, C. (1998a), “The Decomposition of Economic Relationships by Timescale using Wavelets: Expenditure and Income” Study in Nonlinear Dynamics and Economics, 3(1), 23-42.
Ramsey, J.B., and Lampart, C. (1998b), “The Decomposition of Economic Relationships by Timescale using Wavelets: Money and Income” Macroeconomic Dynamics, 2(1), 49-71.
Ruey S. Tsay (2005), “Analysis of Financial Time Series” Second edition. Wiley Series in Probability and Statistics.