Some joint tests of market efficiency: The case of the forward premium
AbstractThe rational expectations model of the term structure is applied to the forward premium on foreign exchange. The model has been previously considered by Hakkio (1981) as a test of a form of market efficiency. Rejection of the model can be due to a failure of the rational expectations hypothesis of the term structure of either the domestic or foreign bond markets, or due to a breakdown of covered interest parity. One- and three-month forward premiums, for three separate currencies, are modeled as unrestricted vector autoregressions, and parametric expressions are derived for a Wald test statistic and an asymptotically efficient two-step estimator of the restricted model. The resulting Wald and Likelihood Ratio statistics give rise to a rejection of the model for all three currencies.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Macroeconomics.
Volume (Year): 7 (1985)
Issue (Month): 2 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622617
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Drakos, Konstantinos, 2003. "The term structure of deviations from the interest parity," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(1), pages 57-67, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.