Cross-Correlations and Cross-Bicorrelations in Sterling Exchange Rates
Posted: 5 Dec 2004
This paper proposes two new tests for linear and nonlinear lead/lag relationships between time series based on the concepts of cross-correlations and cross-bicorrelations respectively. The tests are then applied to a set of Sterling-denominated exchange rates. Our analysis indicates that there existed periods during the post-Bretton Woods era where the temporal relationship between different exchange rates was strong, although these periods have become less frequent over the past twenty years. In particular, our results demonstrate the episodic nature of the nonlinearity, and have implications for the speed of flow of information between financial series. The method generalises recently proposed tests for nonlinearity to the multivariate context.
Keywords: Cross-correlations, cross-bicorrelations, exchange rates, nonlinearity
JEL Classification: C32, F31
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