Nonlinearity as an explanation of the forward exchange rate anomaly
Derek Bond (),
Niall Hession () and
Applied Economics Letters, 2010, vol. 17, issue 13, 1237-1239
This article shows that nonlinearity can provide an explanation for the forward exchange rate anomaly (Fama, 1984). Using sterling-Canadian dollar data and modelling nonlinearity of unspecified form by means of a random field, we find strong evidence of time-wise nonlinearity and, significantly, obtain parameter estimates that conform with theory to a high degree of precision.
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Working Paper: Nonlinearity as an explanation of the forward exchange rate anomaly (2008)
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