The effects of interest rates, stock prices and trading day to the duration of daily exchange rate pattern: using survival analysis

Abstract

This paper examined the predictability of daily exchange rates by identifying the factors that affected the duration of pattern, as well as estimating the probability of escape from the current variation pattern of exchange rates. Survival analysis technique was applied to 12 major daily currency/dollar exchange rates for the period from January 1999 to September 2012. The results show that the US dollar exchange rate is stable against major currencies and has a cyclical pattern, with both the appreciation and depreciation phases containing almost the same number of events. The cumulative probability for the persistence of an exchange rate cycle for five days decreased sharply to 5%. Interestingly, the study confirmed that the duration of declining interest rates, the duration of declining stock prices, and whether the first day of the present cycle follows a non-business day have major statistically significant effects on the duration of an exchange rate pattern.