Deakin University
Browse

File(s) under permanent embargo

A sequential purchasing power parity test for panels of large cross-sections and implications for investors

Version 2 2024-06-03, 15:59
Version 1 2014-12-19, 10:52
journal contribution
posted on 2024-06-03, 15:59 authored by Joakim WesterlundJoakim Westerlund, P Narayan
In this paper we use monthly time series data for not less than 64 countries and a new sequential approach to test for purchasing power parity (PPP). The results are strong in that the evidence in favor of PPP is very weak. In fact, for the US-dollar-based exchange rates the evidence is basically non-existent. In order to eliminate the effect of the base currency, we also apply the sequential PPP test to all pairs of exchange rates, and find similarly weak evidence of PPP. However, for those rates where evidence is found, using a technical trading rule, we find evidence of significant profits. The predictability of the stationary pairs is therefore important for investors.

History

Journal

European journal of finance

Volume

21

Pagination

1317-1333

Location

London, Eng.

ISSN

1351-847X

eISSN

1466-4364

Language

eng

Publication classification

C Journal article, C1 Refereed article in a scholarly journal

Copyright notice

2014, Taylor & Francis

Issue

15

Publisher

Taylor & Francis