IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Has the link between the spot and forward exchange rates broken down? Evidence from rolling cointegration tests

  • Kutan, Ali M.
  • Zhou, Su

In a recent survey, Engel (1996) 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, however. It is argued that failure to account for such significant structural changes in the data generating process may explain the conflicting findings in the literature.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by ZEI - Center for European Integration Studies, University of Bonn in its series ZEI Working Papers with number B 08-2002.

in new window

Date of creation: 2002
Date of revision:
Handle: RePEc:zbw:zeiwps:b082002
Contact details of provider: Postal: Walter-Flex-Straße 3, D - 53113 Bonn
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Baillie, R.T. & Bollerslev, T., 1993. "The Long Memory of the Foreward Premium," Papers 9203, Michigan State - Econometrics and Economic Theory.
  2. Rangvid, Jesper, 2001. "Increasing convergence among European stock markets?: A recursive common stochastic trends analysis," Economics Letters, Elsevier, vol. 71(3), pages 383-389, June.
  3. C. Ennew, & N. Kellard, & P. Newbold, A. J. Rayner & M. E. Wohar,, . "Two Puzzles in the Analysis of Foreign Exchange Market Efficiency," Discussion Papers 96/18, University of Nottingham, School of Economics.
  4. James G. MacKinnon, 2010. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
  5. Hai, Weike & Mark, Nelson C & Wu, Yangru, 1997. "Understanding Spot and Forward Exchange Rate Regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(6), pages 715-34, Nov.-Dec..
  6. Horvath, Michael T.K. & Watson, Mark W., 1995. "Testing for Cointegration When Some of the Cointegrating Vectors are Prespecified," Econometric Theory, Cambridge University Press, vol. 11(05), pages 984-1014, October.
  7. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
  8. Zivot, Eric, 2000. "Cointegration and forward and spot exchange rate regressions," Journal of International Money and Finance, Elsevier, vol. 19(6), pages 785-812, December.
  9. Baillie, Richard T. & Bollerslev, Tim, 2000. "The forward premium anomaly is not as bad as you think," Journal of International Money and Finance, Elsevier, vol. 19(4), pages 471-488, August.
  10. Eric Zivot, 1998. "Cointegration and Forward and Spot Exchange Rate Regressions," Econometrics 9812001, EconWPA.
  11. Charles Engel, 1995. "The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence," NBER Working Papers 5312, National Bureau of Economic Research, Inc.
  12. Engle, R. F. & Granger, C. W. J. (ed.), 1991. "Long-Run Economic Relationships: Readings in Cointegration," OUP Catalogue, Oxford University Press, number 9780198283393.
  13. Rangvid, Jesper & Sørensen, Carsten, 2000. "Convergence in the ERM and declining numbers of common stochastic trends," Working Papers 2000-8, Copenhagen Business School, Department of Finance.
  14. Henrik Hansen & Søren Johansen, 1999. "Some tests for parameter constancy in cointegrated VAR-models," Econometrics Journal, Royal Economic Society, vol. 2(2), pages 306-333.
  15. repec:cup:etheor:v:11:y:1995:i:5:p:984-1014 is not listed on IDEAS
  16. Heejoon Kang, 1999. "The Applied Cointegration Analysis for the Open Economy: A Critical Review," Open Economies Review, Springer, vol. 10(3), pages 325-346, July.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:zbw:zeiwps:b082002. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.