IDEAS home Printed from https://ideas.repec.org/a/spt/apfiba/v3y2013i6f3_6_14.html
   My bibliography  Save this article

The Behavior of Turkish Lira forward and Spot Foreign Exchange Rates

Author

Listed:
  • Neslihan Topbas

Abstract

The purpose of this study is twofold; firstly, the behavior of Turkish lira (TRL) forward rates against US Dollar (USD) and Euro will be evaluated; whether the interest rate parity holds and the market participants quote the forward foreign exchange rates according to the interest rate differentials. It is also analyzed whether the forward foreign exchange rate coincides with the spot exchange rate at the relevant maturity. Secondly, the unbiased forward rate hypothesis (UFH) is tested by the use of regression method. The finding is that for TRL against USD and Euro, the forward rate is a biased predictor of the future spot rate. Going the same way with the previous researchers, the source of the bias is examined. The explanations set by early researchers for the finding of bias in the forward markets for different currencies have been generally based on two different sets of explanations. The first category of explanation maintains the assumption of rational expectations and interprets the systematic component of the forward market’s prediction errors as a risk premium. The second category attributes the systematic component of the forward rate’s prediction errors to expectation errors on the part of market participants that are themselves systematic.

Suggested Citation

  • Neslihan Topbas, 2013. "The Behavior of Turkish Lira forward and Spot Foreign Exchange Rates," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 3(6), pages 1-14.
    • Handle: RePEc:spt:apfiba:v:3:y:2013:i:6:f:3_6_14
    as

    Download full text from publisher

    File URL: http://www.scienpress.com/Upload/JAFB%2fVol%203_6_14.pdf
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spt:apfiba:v:3:y:2013:i:6:f:3_6_14. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Eleftherios Spyromitros-Xioufis (email available below). General contact details of provider: http://www.scienpress.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.