You are a currency exchange (FX) trader and wonder if the average FX rate for Emerging...

 

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You are a currency exchange (FX) trader and wonder if the average FX rate for Emerging Markets versus US Dollar is Cointegrated with the average FX rate for Developed Markets versus US Dollar. You run a regression with EM FX Rates (Y variable) against DM FX Rates (X Variable). The results of the regression are: R Squared 92% : Intercept 0.5 Slope 2.0 You now want to test the errors for Cointegration. a) From the first three FX observations below, compute the values you would use for the Y and X series in conducting the Cointegrated test Obs EM FX DM FX 1 3.0 4.6 5.0 2 2.0 3 3.0 b) You run a regression to test for Cointegration. Some of the output is: 1.5 Coefficient 0.05 -0.63 Standard Error 0.01 0.15 Intercept Slope Is the FX relationship Cointegrated? Test at the 5% significance level. You are a currency exchange (FX) trader and wonder if the average FX rate for Emerging Markets versus US Dollar is Cointegrated with the average FX rate for Developed Markets versus US Dollar. You run a regression with EM FX Rates (Y variable) against DM FX Rates (X Variable). The results of the regression are: R Squared 92% : Intercept 0.5 Slope 2.0 You now want to test the errors for Cointegration. a) From the first three FX observations below, compute the values you would use for the Y and X series in conducting the Cointegrated test Obs EM FX DM FX 1 3.0 4.6 5.0 2 2.0 3 3.0 b) You run a regression to test for Cointegration. Some of the output is: 1.5 Coefficient 0.05 -0.63 Standard Error 0.01 0.15 Intercept Slope Is the FX relationship Cointegrated? Test at the 5% significance level.

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a The values for the Y and X series in the Cointegrated te... View the full answer