An Empirical Analysis of Relationships between the Forward Exchange Rates and Present and Future Spot Exchange Rates Example of CZK/USD and CZK/EUR
Josef Arlt () and
Martin Mandel ()
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Josef Arlt: Faculty of Informatics and Statistics, University of Economics, Prague, Czech Republic
Martin Mandel: Faculty of Finance and Accounting, University of Economics, Prague, Czech Republic
Czech Journal of Economics and Finance (Finance a uver), 2017, vol. 67, issue 3, 199-220
The aim of this paper is to present an empirical analysis of the relationships between the forward and spot exchange rates in the Czech Republic. The forward rate unbiasedness hypothesis, the expectation hypothesis, the adaptive expectation hypothesis and the hypothesis of covered interest rate parity are formulated in this paper. To test the first two hypotheses the econometric procedure based on co-integration and weak exogeneity testing is proposed. The third and fourth hypotheses are verified by the Engle-Granger co-integration test. The estimates do not support the forward rate unbiasedness hypothesis. On the contrary, the results confirm the hypothesis of adaptive expectation and the hypothesis of covered interest rate parity.
Keywords: forward and spot exchange rates; unbiasedness hypothesis; interest rate differentials; co-integration; exogeneity (search for similar items in EconPapers)
JEL-codes: F31 C12 C22 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:67:y:2017:i:3:p:199-220
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