|
|
|
|
||||
|
||||
Noninformative Tests of the Unbiased Forward Exchange RateScott W. BarnhartFlorida Atlantic University Robert F. McNownUniversity of Colorado at Boulder - Department of Economics Myles S. WallaceClemson University - John E. Walker Department of Economics Journal of Financial and Quantitative Analysis, June 1999 Abstract: In this paper a familiar, but unsettling result in the foreign exchange literature is reexamined: that the forward rate is not an unbiased predictor of the future spot rate. The paper outlines why some frequently used tests of unbiasedness are noninformative in the sense that they are incapable of correctly testing the hypothesis. Specifically, many of these tests are based on regressions that suffer from simultaneity bias, resulting in biased and inconsistent estimators. This is true whether the tests are conducted using stationary or nonstationary data. This point is demonstrated both analytically and with simulations. Tests of cointegration, which are not subject to the critique presented in the paper, generally fail to reject unbiasedness.
Number of Pages in PDF File: 28 JEL Classification: F31, G12 Accepted Paper SeriesDate posted: April 19, 1999 ; Last revised: October 6, 2009Suggested CitationContact Information
|
|
|||||||||||||||||||||
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was processed by apollo8 in 0.297 seconds
