English, Article, Journal or magazine article edition: The Forward Rate Unbiasedness Hypothesis Revisited: Evidence from a New Test Natalya Delcoure; John T. Barkoulas; Christopher F. Baum; ...

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Bookmark: http://trove.nla.gov.au/version/73665
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • The Forward Rate Unbiasedness Hypothesis Revisited: Evidence from a New Test
Author
  • Natalya Delcoure
  • John T. Barkoulas
  • Christopher F. Baum
  • Atreya Chakraborty
Physical Description
  • preprint
Notes
  • Under conditions of risk neutrality and rational expectations in the foreign exchange market, there should be a one-to-one relationship between the forward rate and the corresponding future spot rate. However, cointegration-based tests of the unbiasedness hypothesis of the forward rate have produced mixed findings. In order to exploit significant cross-sectional dependencies, we test the unbiasedness hypothesis using a new multivariate (panel) unit-root test, the Johansen likelihood ratio (JLR) test, which offers important methodological advantages over alternative standard panel unit-root tests. When applied to a data set of eight major currencies in the post-Bretton Woods era, the JLR test provides strong and robust evidence in support of a unitary cointegrating vector between forward and corresponding future spot rates. However, the orthogonality condition is satisfied only for three major currencies.
  • Forward rate unbiasedness, panel unit-root tests, cointegration
  • RePEc:boc:bocoec:464
Language
  • English
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