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A cointegration analysis of the Asian dollar and Eurodollar interest rate transmission mechanism

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Abstract

The transmission mechanism between the Asian dollar and Eurodollar markets is investigated for the period 1981–1989 using a cointegration analysis and error correction model. Results indicate the absence of reverse causality in the Asian dollar market throughout the 1980s. In the Eurodollar market, reverse causality exists in the first half, but disappears in the second half of the decade. Both markets are evolving into rapid incorporation of prior interest rate information into current rates. These results are likely to be due to reduced market regulation, expansion of futures trading, more sophisticated telecommunications and 24-hour trading practices.

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Authors and Affiliations

  1. University of Baltimore, USA

    Steven C Isberg (Assistant Professor of Finance)

  2. Lousiana State University, USA

    Wai K Leung (Assistant Professor of Finance)

Authors
  1. Hung-Gay Fung
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  2. Steven C Isberg
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  3. Wai K Leung
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Additional information

The authors wish to thank Zoltan Acs and Elizabeth Cooperman for helpful comments and suggestions. Invaluable assistance in data collection and entry was provided by Brett Salazar. Any errors remain our own.

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Fung, HG., Isberg, S.C. & Leung, W.K. A cointegration analysis of the Asian dollar and Eurodollar interest rate transmission mechanism. Asia Pacific J Manage 9, 167–177 (1992). https://doi.org/10.1007/BF01732894

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  • DOI: https://doi.org/10.1007/BF01732894

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