Spagnolo, F. and Psaradakis, Zacharias and Sola, M. (2005) Testing the unbiased forward exchange rate hypothesis using a Markov-switching model and instrumental variables. Journal of Applied Econometrics 20 (3), pp. 423-437. ISSN 0883-7252.
Abstract
This paper develops a model for the forward and spot exchange rate which allows for the presence of a Markov switching risk premium in the forward market and considers the issue of testing the unbiased forward exchange rate (UFER) hypothesis. Using US/UK data, it is shown that the UFER hypothesis cannot be rejected, provided that instrumental variables are used to account for within‐regime correlation between explanatory variables and disturbances in the Markov switching model on which the test is based.
Metadata
| Item Type: | Article |
|---|---|
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Depositing User: | Sarah Hall |
| Date Deposited: | 21 Jul 2020 07:13 |
| Last Modified: | 02 Aug 2023 18:01 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/32616 |
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