{"title":"Examining the Dynamics of India’s Major Exchange Rates Using Fourier Nonlinear Quantile Unit Root Test","authors":"Khyati Kathuria, Nand Kumar","doi":"10.1007/s10690-024-09473-8","DOIUrl":null,"url":null,"abstract":"<p>The paper empirically investigates the validity of Purchasing Power Parity (PPP) hypothesis for India with its 20 major trading partners using the Fourier non-linear quantile unit root (FNQKS) test. The study uses daily data for the period 1st January 2020–2nd February 2022. FNQKS test supports PPP in 15 out of 20 trading partners of India. The validity of PPP indicates that it is impossible to obtain unbounded gains from arbitrage in these trading partners because of the adjustment process even in the presence of heavy-tailed distributions, mean breaks, and non-linearity. It also indicates that the impact of shocks on the exchange rates is transitory. Therefore, no interventions in these foreign exchange markets need to be made by the relevant authorities. Thus, non-normal distributions, structural breaks, and non-linear mean reversion appear to be key features for adjustment process of exchange rates of these 15 trading partners.</p>","PeriodicalId":54095,"journal":{"name":"Asia-Pacific Financial Markets","volume":"17 1","pages":""},"PeriodicalIF":2.5000,"publicationDate":"2024-06-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Asia-Pacific Financial Markets","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1007/s10690-024-09473-8","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
The paper empirically investigates the validity of Purchasing Power Parity (PPP) hypothesis for India with its 20 major trading partners using the Fourier non-linear quantile unit root (FNQKS) test. The study uses daily data for the period 1st January 2020–2nd February 2022. FNQKS test supports PPP in 15 out of 20 trading partners of India. The validity of PPP indicates that it is impossible to obtain unbounded gains from arbitrage in these trading partners because of the adjustment process even in the presence of heavy-tailed distributions, mean breaks, and non-linearity. It also indicates that the impact of shocks on the exchange rates is transitory. Therefore, no interventions in these foreign exchange markets need to be made by the relevant authorities. Thus, non-normal distributions, structural breaks, and non-linear mean reversion appear to be key features for adjustment process of exchange rates of these 15 trading partners.
期刊介绍：
The current remarkable growth in the Asia-Pacific financial markets is certain to continue. These markets are expected to play a further important role in the world capital markets for investment and risk management. In accordance with this development, Asia-Pacific Financial Markets (formerly Financial Engineering and the Japanese Markets), the official journal of the Japanese Association of Financial Econometrics and Engineering (JAFEE), is expected to provide an international forum for researchers and practitioners in academia, industry, and government, who engage in empirical and/or theoretical research into the financial markets. We invite submission of quality papers on all aspects of finance and financial engineering.
Here we interpret the term ''financial engineering'' broadly enough to cover such topics as financial time series, portfolio analysis, global asset allocation, trading strategy for investment, optimization methods, macro monetary economic analysis and pricing models for various financial assets including derivatives We stress that purely theoretical papers, as well as empirical studies that use Asia-Pacific market data, are welcome.
Officially cited as: Asia-Pac Financ Markets
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