On the Impact of the Boundary on Dynamics : Anti-Persistence in the Case of the HKD Exchange Rate Corridor

This paper assesses the conformity of the USD/HKD exchange rate dynamics to that of a random walk after confinement to a specified corridor. This is achieved with the Hurst exponent, as estimated using the rescaled range method, by its variation from the random walk Hurst exponent of 0.5. At least two distinct Hurst exponents are identified, one corresponding to a random walk while the other, to an anti-persistent process. Partitioning the rate in state space associates the anti-persistence with proximity to the lower boundary of the corridor. Away from the boundary, the rate can still be modelled using a random walk