Has the Link Between the Spot and Forward Exchange Rates Broken Down? Evidence from Rolling Cointegration Tests
AbstractRecent literature reported conflicting results about the cointegration relationship between the spot and forward exchange rates. Applying rolling cointegration tests to the mark, yen, and Swiss franc with respect to the U.S. dollar for the post-80 period, we find that the relationship between the two rates broke down in the late 1980s. Although they became cointegrated again during the mid-90s, they no longer co-moved proportionally. It is argued that failure to account for such significant structural changes in the data generating process explains, at least partially, the conflicting findings reported in the literature. Copyright Kluwer Academic Publishers 2003
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Bibliographic InfoArticle provided by Springer in its journal Open Economies Review.
Volume (Year): 14 (2003)
Issue (Month): 4 (October)
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Web page: http://www.springerlink.com/link.asp?id=100323
forward and spot rates; rolling cointegration tests; market efficiency; predictability; structural break;
Other versions of this item:
- Kutan, Ali M. & Zhou, Su, 2002. "Has the link between the spot and forward exchange rates broken down? Evidence from rolling cointegration tests," ZEI Working Papers B 08-2002, ZEI - Center for European Integration Studies, University of Bonn.
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