Long‐term dependence in exchange rates

Abstract

The extent to which exchange rates of four major currencies against the Greek Drachma exhibit long‐term dependence is investigated using a R / S analysis testing framework. We show that both classic R / S analysis and the modified R / S statistic if enhanced by bootstrapping techniques can be proven very reliable tools to this end. Our findings support persistence and long‐term dependence with non‐periodic cycles for the Deutsche Mark and the French Franc series. In addition a noisy chaos explanation is favored over fractional Brownian motion. On the contrary, the US Dollar and British Pound were found to exhibit a much more random behavior and lack of any long‐term structure.