A nonparametric cointegration analysis of the forward rate unbiasedness hypothesis
AbstractThe nonparametric cointegration method of Breitung (2002) is applied to test for the forward rate unbiasedness hypothesis (FRUH) using monthly data of the US dollar vis-à-vis two major currencies viz. the British pound and the Canadian dollar over the period spanned from 1973 to 2002. The results of the nonparametric test are compared with the parametric test suggested by Johansen (1988 and 1992) and Johansen and Juselius (1990). Robust cointegration is found between the spot and the forward rates but the FRUH is rejected. The result is robust whether the trend is included in the model or not.
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Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal Applied Financial Economics Letters.
Volume (Year): 2 (2006)
Issue (Month): 4 (July)
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Web page: http://www.tandf.co.uk/journals/titles/17446546.asp
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