Some Empirical Observations on the Forward Exchange Rate Anomaly
Derek Bond (),
Michael J. Harrison (),
Niall Hession () and
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Michael J. Harrison: Department of Economics, Trinity College
Economic Papers from Trinity College Dublin, Economics Department
This paper looks at issues surrounding the testing of fractional integration and nonlinearity in relation to the forward exchange rate anomaly of Fama (1984). Recent tests for fractional integration and nonlinearity are discussed and used to investigate the behaviour of three exchange rates and premiums. The findings provide some support for I(1) exchange rates but suggest fractionality for premiums, mixed evidence on cointegration, and a strong possibility of time-wise nonlinearity. Significantly, when the nonlinearity is modelled using a random field regression, the forward anomaly disappears.
JEL-codes: C22 F31 F41 (search for similar items in EconPapers)
Pages: 25 pages
New Economics Papers: this item is included in nep-fmk and nep-ifn
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Working Paper: Some Empirical Observations on the Forward Exchange Rate Anomaly (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:tcd:tcduee:tep2006
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