The Forward Rate Biasedness in Developing and Developed Country Currencies

Neslihan Topbas
Authors registered in the RePEc Author Service: Neslihan Turguttopbas

Journal of Applied Finance & Banking, 2013, vol. 3, issue 5, 11

Abstract: After a consensus emerged about the biasedness of the forward rate in predicting the future spot rate, the focus of relevant analysis has turned to whether the forward exchange rate biasedness is more pronounced for emerging market currencies than for the developed countries, or vice versa. The most referenced study of Frankel and Poonawala (2010) resulted with the surprising finding that the unbiasedness in the forward rates of the developing country currencies is more severe. Contrarily, the findings of Lorey and Lucey (2012) is that forward rate biasedness is less pronounced for the developed country currencies than for developing country currencies and they attributed this conflict to the period-specific factors. In this study, the similar tests are realized on the data set consisting of the daily forward quotations of both of the group of currencies in a broader time period beginning in 2000 ending in November 2012. The results of the study are not supportive for both of the previous studies and revealed the fact that there exist no considerable differences between the biasedness of the forward rates of the currencies of the developing and developed countries.

Date: 2013
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