We advocate the use of absolute moment ratio statistics in conjunction with standard variance ratio statistics in order to disentangle linear dependence, non-linear dependence, and leptokurtosis in financial time series. Both statistics are computed for multiple return horizons simultaneously, and the results are presented in a comprehensive way using a graphical device. We construct a formal joint testing procedure based on bootstrapped and block-bootstrapped uniform confidence intervals. The methodology is hybrid because it combines a formal testing procedure with volatility curve pattern recognition based on expert opinions. An application to forex data illustrates the procedure.

absolute returns, bootstrap, fat-tails, forex market efficiency, linear dependence, stable distributions, variance ratios, volatility clustering
Semiparametric and Nonparametric Methods (jel C14), Foreign Exchange (jel F31), Information and Market Efficiency; Event Studies (jel G14)
hdl.handle.net/1765/7746
Tinbergen Institute Discussion Paper Series
Tinbergen Institute

Groenendijk, P.A, Lucas, A, & de Vries, C.G. (1998). A Hybrid Joint Moment Ratio Test for Financial Time Series (No. TI 98-104/2). Tinbergen Institute Discussion Paper Series. Retrieved from http://hdl.handle.net/1765/7746