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Alejandro Fonseca EGADE Business School, Campus Monterrey afonseca@itesm.mx

Alejandro Fonseca EGADE Business School, Campus Monterrey afonseca@itesm.mx Roberto J. Santillan -Salgado EGADE Business School, Campus Monterrey roberto.santillan@itesm.mx. Increasing role of foreign exchange in corporate decision making has become a popular topic in modern economies.

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Alejandro Fonseca EGADE Business School, Campus Monterrey afonseca@itesm.mx

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  1. Alejandro Fonseca EGADE Business School, Campus Monterrey afonseca@itesm.mx Roberto J. Santillan-Salgado EGADE Business School, Campus Monterrey roberto.santillan@itesm.mx

  2. Increasing role of foreign exchange in corporate decision making has become a popular topic in modern economies. “long memory“ model of exchange rate return We examine the performance of several of the GARCH family models (EGARCH,GARCH-M, TARCH, FIGARCH) in forecasting the volatility behavior of the peso-dollar exchange rate and finally taste the presence of LM in the peso dolarxt.

  3. Long MemoryModels (CWJ Granger, R Joyeux 1980,1996) LM Modelsestimation (J Geweke, S Porter‐Hudak 1983) LMM & Stock markets (Z Ding, CWJ Granger, RF Engle 1993T Bollerslev, H Ole Mikkelsen 1996) XR VolatilityModelling XR Modelling LM Processes and Fractionalintegration in econometrics J Gonzalo, C Granger 1995 LM & Regime Switching FX Diebold, A Inoue 2001 LM detection and estimation in stochastic volatility FJ Breidt, N Crato, P De Lima , 1998 LM in ForeignXR´s YW Cheung, 1993

  4. Testingforlongmemory data

  5. Testingforlongmemory data

  6. Normality Test Section of Peso Dólar returns • Test Prob 10% Critical 5% Critical Decision • Test Name Value Level 10%Value 5%Value - 5% decision • Shapiro-Wilk W 0.615181 0 Reject normality • Anderson-Darling 339.0483 1 Can't reject normality • Martinez-Iglewicz 3.662488 0.994594 0.994536 Reject normality • Kolmogorov-Smirnov 0.158299 0.015 0.016 Reject normality • D'Agostino Skewness 49.87968 0 1.645 1.96 Reject normality • D'Agostino Kurtosis 45.3115 0 1.645 1.96 Reject normality • D'Agostino Omnibus 4541.117 0 4.605 5.991 Reject normality

  7. We find the presence of a long memory behavior in the data. • Same as Taylor(1986) and Granger , et al(1993) we found that the return process is characterized by more correlation between squared returns or absolute values than there is between returns themselves. • Series is not iid, contradicting eficient markets h´s.

  8. An introduction to long‐memory time series models and fractional differencing,CWJ Granger, R Joyeux - Journal of time series analysis, 1980 • The estimation and application of long memory time series models,J Geweke, S Porter‐Hudak - Journal of time series analysis, 1983 • Varieties of long memory models, CWJ Granger, Z Ding - Journal of econometrics • A long memory property of stock market returns and a new model, Z Ding, CWJ Granger, RF Engle - Journal of empirical finance, 1993 • Long memory processes and fractional integration in econometrics,RT Baillie - Journal of econometrics, 1996 • Modeling and pricing long memory in stock market volatility,TBollerslev, H Ole Mikkelsen - Journal of Econometrics, 1996 • The detection and estimation of long memory in stochastic volatility,FJ Breidt, N Crato, P De Lima - Journal of econometrics • Long memory in foreign-exchange rates, YW Cheung - Journal of Business & Economic Statistics • On Estimation of Long –Memory Time Series Models , Y Yajima - Australian Journal of Statistics, 1985 • Modeling and pricing long memory in stock market volatility • T Bollerslev, H Ole Mikkelsen - Journal of Econometrics, 1996 - Elsevier

  9. Varieties of long memory models • CWJ Granger, Z Ding - Journal of econometrics, 1996 – Elsevier • A search for long memory in international stock market returns • YW Cheung, KS Lai - Journal of International Money and Finance, 1995 - Elsevier • Modelling financial time series, Taylor, S. 1986, N.Y. John Wiley & Sons. • Statistical tests for whether a given set of independent, identically distributed draws comes from a specified probability density,Mark Tygert1,Communicated by Vladimir Rokhlin, Yale University, New Haven, CT, June 14, 2010 (received for review May 24, 2010).Procedings of the national academy of sciences of the USA.

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