Please use this identifier to cite or link to this item: http://buratest.brunel.ac.uk/handle/2438/862
Title: Testing the Unbiased Forward Exchange Rate Hypothesis Using a Markov Switching Model and Instrumental Variables
Authors: Spagnolo, F
Psaradakis, Z
Sola, M
Keywords: Instrumental variables; Forward exchange rate; Markov chain; Maximum likelihood;;Regime switching.
Issue Date: 2003
Publisher: Brunel University
Citation: Economics and Finance Working papers, Brunel University, 03-15
Abstract: This paper develops a model for the forward and spot exchange rate which allows for the presence of a Markov switching risk premium in the forward market and considers the issue of testing for the unbiased forward exchange rate (UFER) hypothesis. Using US/UK data, it is shown that the UFER hypothesis cannot be rejected provided that instrumental variables are used to account for within-regime correlation between explanatory variables and disturbances in the Markov switching model on which the test is based.
URI: http://bura.brunel.ac.uk/handle/2438/862
Appears in Collections:Dept of Economics and Finance Research Papers

Files in This Item:
File Description SizeFormat 
03-15.pdf280.38 kBAdobe PDFView/Open


Items in BURA are protected by copyright, with all rights reserved, unless otherwise indicated.