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Common Stochastic Trends Among Asian Currencies: Evidence for Japan, Aseans, and the Asian Tigers

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Abstract

This study documents that daily changes in Asian exchange rates are significantly non-normal, serially correlated, non-stationary, and have unit roots. Further, accounting for these time series properties and using a longer time horizon than other similar studies of exchange rates, this study also documents cointegration between the Japanese Yen and two sets of Asian currencies, i.e., currencies of the 'Tigers', Hong Kong, South Korea, Singapore, and Taiwan; and currencies of the ASEANs, Malaysia, Philippines, Thailand, and Singapore. These findings of cointegration among Asian exchange rates are in contrast to the findings for the major currencies, and are evidence of nascent Yen blocs in Asia. The results presented here have important implications for understanding Asian financial integration and the international role of the Japanese yen and should be useful for developing asset allocation, currency overlay, value at risk (VAR), and hedging strategies for investments in these often illiquid Asian currencies.

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Authors and Affiliations

  1. The Edward J. and Louise E. Mellen Chair in Finance, John Carroll University, Cleveland, Ohio, 44118

    Raj Aggarwal

  2. School of Business Administration, Wayne State University, Detroit, MI, 48202

    Mbodja Mougoué

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  1. Raj Aggarwal
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  2. Mbodja Mougoué
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Aggarwal, R., Mougoué, M. Common Stochastic Trends Among Asian Currencies: Evidence for Japan, Aseans, and the Asian Tigers. Review of Quantitative Finance and Accounting 10, 193–206 (1998). https://doi.org/10.1023/A:1008247823487

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