Forward Rate Unbiasedness Hypothesis in the Tunisian Exchange Rate Market

Dhekra Azouzi (), Rohit Kumar and Chaker Aloui
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Dhekra Azouzi: Tunis El Manar University

International Journal of Academic Research in Business and Social Sciences, 2011, vol. 1, issue 2, 17-44

Abstract: Based on a linear framework, this paper aims to examine the relationship between future spot rates and forward exchange rates using USD-TND data, thanks to traditional regressions and to the Vector Error Correction Model (VECM) in order to check if the Unbiasedness Forward Exchange Rate (UFER) hypothesis is satisfied and if the forward premiums contain valuable information useful to forecast the subsequent path that will be taken by spot exchange rates. The empirical analysis reveals that the UFER hypothesis is rejected and that the forward premium is a crucial tool, at short term, to detect the future movements of spot exchange rates. A potential enrichment of such a paper will rely on a non linear framework.

Keywords: UFER hypothesis; cointegration; VECM; Tunisia (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:hur:ijarbs:v:1:y:2011:i:2:p:17-44

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