The Unbiasedness Hypothesis from a Panel Perspective

Posted: 2 Oct 1996

See all articles by Ronald Huisman

Ronald Huisman

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Kees C. G. Koedijk

Tilburg University - Department of Finance

Clemens J.M. Kool

Utrecht University - School of Economics

Francois Nissen

MeesPierson Investment Bank

Abstract

Risk premia, peso-problems and market-inefficiencies have been suggested as candidate explanations for the apparent rejection of the unbiased hypothesis. If various explanations interact, a panel approach is called for. In this paper we estimate different panel models, that allow for cross-sectional dependence of exchange rates, for fifteen currencies between 1979 and 1996. We show that the deviation from uncovered interest parity is smaller than commonly presumed. Estimates of the slope coefficients of the forward premium appear to be positive but still significantly different from unity. In addition it is shown that this coefficient is close to unity if only five to ten percent of the largest changes in the forward premium are taken into account. These findings point to the importance of peso-problems and inactivity bands as explanations for the apparent rejection of the uncovered interest parity relationship.

JEL Classification: F31

Suggested Citation

Huisman, Ronald and Koedijk, Kees G. and Kool, Clemens J.M. and Nissen, Francois, The Unbiasedness Hypothesis from a Panel Perspective. Available at SSRN: https://ssrn.com/abstract=7777

Ronald Huisman (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Kees G. Koedijk

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 4663048 (Phone)
+31 13 4662052 (Fax)

Clemens J.M. Kool

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Francois Nissen

MeesPierson Investment Bank

P.O. Box 243
1000 AE Amsterdam
Netherlands
+31 20 527 7921 (Phone)
+31 20 527 1984 (Fax)

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