Does the Forward Discount Represent a Long Memory Process or Short Memory Process with Multiple Changes in the Mean?

Shahrin Aidil Rizal ()
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Shahrin Aidil Rizal: Department of Finance and Banking, Faculty of Business & Accountancy, University of Malaya, 50603 Kuala Lumpur, Malaysia

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 2015, vol. 235, issue 6, 630-641

Abstract: This study aims to determine whether forward discount represents a long memory or short memory process with multiple changes in the mean. Based on the samples of six currencies from November 3, 1986, to March 6, 1998, using Baek and Pipiras’s (2012, 2014) statistical procedures, our findings suggest that forward discount is a short memory process with multiple changes in the mean rather than long memory. These changes in mean are the result of an intervention by monetary authorities in the forex market. Thus, earlier findings of long memory in forward discount, as reported in the extant literature, are questionable.

Keywords: Long memory; multiple changes in mean; exchange rate; forward rate unbiasedness hypothesis (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:jns:jbstat:v:235:y:2015:i:6:p:630-641

DOI: 10.1515/jbnst-2015-0607

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