Cross-Correlations and Cross-Bicorrelations in Sterling Exchange Rates

Posted: 5 Dec 2004

See all articles by Chris Brooks

Chris Brooks

University of Bristol - School of Economics, Finance and Management

Melvin Hinich

University of Texas at Austin - Applied Research Laboratories; University of Texas at Austin - Department of Government

Abstract

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

Suggested Citation

Brooks, Chris and Hinich, Melvin, Cross-Correlations and Cross-Bicorrelations in Sterling Exchange Rates. Available at SSRN: https://ssrn.com/abstract=626701

Chris Brooks (Contact Author)

University of Bristol - School of Economics, Finance and Management ( email )

School of Accounting and Finance
15-19 Tyndalls Park Road
Bristol, BS8 1PQ
United Kingdom

Melvin Hinich

University of Texas at Austin - Applied Research Laboratories ( email )

P.O. Box 8029
Austin, TX 78713-8029
United States
512-835-3278 (Phone)

HOME PAGE: http://www.gov.utexas.edu/hinich

University of Texas at Austin - Department of Government ( email )

College of Liberal Arts
1 University Station A1800
Austin, TX 78712
United States

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