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http://bura.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 |
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