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Testing the forward rate unbiasedness hypothesis during the 1920s

Panayiotis F. Diamandis, Dimitris Georgoutsos and Georgios Kouretas ()

Journal of International Financial Markets, Institutions and Money, 2008, vol. 18, issue 4, 358-373

Abstract: This paper reexamines the forward rate unbiasedness hypothesis (FRUH) during the 1920s and it contributes to the literature as follows: first, it utilizes a database that includes currencies not studied before, as well as the 3 month forward rates; second, it applies three different approaches to test for cointegration and it shows that the choice of the technique is not of crucial importance; third, it tests for the temporal stability of the cointegration results; finally, it tests for the existence of the FRUH in the short run, by means of error correction models, whereas previous studies focused on cointegrated vectors only. Our analysis shows that for countries that did not undergo major financial turmoil during that period, there exists more favorable evidence for the FRUH.

Date: 2008
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