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An empirical investigation of the unbiased forward exchange rate hypothesis in a regime switching market

In: Hidden Markov Models in Finance

Author

Listed:
  • Emilio Russo

    (University of Bergamo)

  • Fabio Spagnolo

    (Brunel Business School)

  • Rogemar Mamon

    (The University of Western Ontario
    Brunel University)

Abstract

Summary In this article we develop a model for exchange rate dynamics in an economy that exhibits regime shifts. The switching of regimes is modulated by a Markov chain in discrete time. A description of the foreign exchange market and of its stylised features is given. Finally, unbiased forward exchange rate hypothesis (UFER) is tested in the context of the US-dollar/UK-pound spot and forward exchange rates.

Suggested Citation

  • Emilio Russo & Fabio Spagnolo & Rogemar Mamon, 2007. "An empirical investigation of the unbiased forward exchange rate hypothesis in a regime switching market," International Series in Operations Research & Management Science, in: Rogemar S. Mamon & Robert J. Elliott (ed.), Hidden Markov Models in Finance, chapter 9, pages 133-153, Springer.
    • Handle: RePEc:spr:isochp:978-0-387-71163-8_9
    DOI: 10.1007/0-387-71163-5_9
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    Cited by:

    1. Vacu, Nomfudo P. & Odhiambo, Nicholas M., 2020. "The Determinants of Import Demand in South Africa: An Empirical Investigation," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 73(1), pages 51-76.

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