INTERNATIONAL JOURNAL OF BUSINESS, 15(3), 2010 ISSN: 10834346 Interdependence between Exchange Rates: Evidence from Multivariate Fractional Cointegration Heni Boubaker a and Lotfi Belkacem b a IHEC–Sousse, UR–Finance Quantitative, heniboubaker@gmail.com b IHEC–Sousse, UR–Finance Quantitative, Lotfi.Belkacem@isgs.rnu.tn ab B.P.: 40, Route de la ceinture, Sahloul III, 4054 Sousse, Tunisia ABSTRACT In this paper, we examine the relationship between the Tunisian Dinar relative to US Dollar, the Euro and the Japanese Yen using multivariate fractional cointegration approach developed by Davidson (2002, 2006). The main advantage of this approach is to detect the long term relationship as well as the short term dynamics and to represent the interdependence between the variables. Moreover, we implement a causal analysis (Granger (1988)) to examine the links between the variables. The empirical results provide evidence of fractional cointegration between the exchanges rates and show long-run causal links between the variables. In particular, we find a significant bidirectional causal links. Thus, we conclude to the existence of interdependence between the exchange rate series and we reject the hypothesis of weak informational efficiency in the Tunisian exchange market. JEL Classification: C13, F31, G14 Keywords: Dependence exchange markets; Weak exchange market efficiency hypothesis; Fractional cointegration model; Rank of cointegration; Causal analysis