Nonlinearity as an explanation of the forward exchange rate anomaly

Derek Bond, Niall Hession (), Michael J. Harrison and Edward O'Brien

No 200801, Working Papers from School of Economics, University College Dublin

Abstract: This paper shows that nonlinearity can provide an explanation for the forward exchange rate anomaly (Fama, 1984). Using sterling-Canadian dollar data, and modelling nonlinearity of unspecified form by means of a random field, we find strong evidence of time-wise nonlinearity and, significantly, obtain parameter estimates that conform with theory to a high degree of precision: the anomaly disappears.

Keywords: Forward exchange rate anomaly; Nonlinearity; Random field regression; Foreign exchange; Nonlinear theories; Random fields (search for similar items in EconPapers)
JEL-codes: C22 F31 (search for similar items in EconPapers)
Date: 2008-01
New Economics Papers: this item is included in nep-cba and nep-ifn
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http://hdl.handle.net/10197/1272 First version, 2008 (application/pdf)

Related works:
Journal Article: Nonlinearity as an explanation of the forward exchange rate anomaly (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ucn:wpaper:200801

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