Please use this identifier to cite or link to this item:
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 |
Items in BURA are protected by copyright, with all rights reserved, unless otherwise indicated.