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Tunisian and Indian Forex Markets: A Comparision on Forward Rate Unbiased Hypothesis

Author

Listed:
  • Rohit Vishal Kumar

    (Xavier Institute of Social Service, Ranchi, India)

  • Dhekra Azouzi

    (Institute of High Commercial Studies of Sousse, Tunisia)

Abstract

Forward Rate Unbiased Hypothesis (FRUH) has been the subject of intensive scrutiny by researchers. Majority of the work has focused on the forward and the spot rate of the currency of a single country. Cross country FRUH comparison has been rare. This paper is an attempt to fill the lacuna by comparing the FRUH in the Indian and the Tunisian Forex Market. The dataset used in this study consists of 238 weekly observations of the Tunisian and Indian spot and forward exchange rates for the four-year period starting 01 April 2004 to 16 October 2008. Analysis shows that the FRUH does not hold in both the markets. However, FRUH seems to be more severe in the Indian markets than in the Tunisian markets. Furthermore, the slope coefficient’s in the Indian case were negative as opposed to the Tunisian case suggesting that India is a more developed economy as compared to Tunisia. Based on our evidences, we highlight some reasons as to why the FRUH fails and suggest areas for further research.

Suggested Citation

  • Rohit Vishal Kumar & Dhekra Azouzi, 2011. "Tunisian and Indian Forex Markets: A Comparision on Forward Rate Unbiased Hypothesis," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 14(40), pages 81-98, June.
    • Handle: RePEc:rej:journl:v:14:y:2011:i:40:p:81-98
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    References listed on IDEAS

    as
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    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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