Parity conditions and the efficiency of the Australian 90‐ and 180‐day forward markets

Bruce Felmingham and SuSan Leong

Review of Financial Economics, 2005, vol. 14, issue 2, 127-145

Abstract: Covered Interest Parity (CIP) holds in the 90 and 180 forward market for the AUD/USD spot exchange rate provided fully modified least absolute deviation model (FM‐LAD) procedures are applied to daily data for the period from December 2, 1985 to December 29, 2000. CIP fails if corrected ordinary least squares (OLS) and fully modified OLS (FM‐OLS) procedures are applied. However, UIP fails in both markets on early data: December 2, 1985 to December 31, 1991, but holds in the 90‐day market in a later subperiod: January 2, 1992 to December 29, 2000 FM. UIP is modified (M) to accommodate a potential risk premium. The MUIP model does not provide strong evidence suggesting the presence of a time‐varying risk premium (TRP).

Date: 2005
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https://doi.org/10.1016/j.rfe.2004.08.003

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Persistent link: https://EconPapers.repec.org/RePEc:wly:revfec:v:14:y:2005:i:2:p:127-145

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