oa South African Journal of Economic and Management Sciences - Memory properties of the forward premium: a study on South African exchange rates
|Article Title||Memory properties of the forward premium: a study on South African exchange rates|
|© Publisher:||University of Pretoria|
|Journal||South African Journal of Economic and Management Sciences|
|Affiliations||1 Department of Statistics, University of Pretoria|
|Publication Date||Sep 2002|
|Pages||499 - 510|
|Keyword(s)||C 10, Currencies, Developing countries, Economics, Empirical analysis, Exchange rates, F 31, Forward premiums, Forward rate unbiasedness hypothesis, G l4, JEL, Memory properties, Rand/dollar exchange rates and Statistics|
ISI Social Science
The forward rate unbiasedness hypothesis states that the current forward rate should be an unbiased forecaster of the future spot rate. Inference has always been done under the assumption that the forward premium is a stationary short memory series. Recent empirical results have indicated that this assumption is not valid. Standard unit root tests performed on the forward premium often indicate infinite long memory. However, in recent literature fractionally integrated models have been applied for the forward premium. Empirical analysis is usually performed on exchange rates of developed economies. In this article, the South African Rand-Dollar exchange rate is considered and the focus is therefore on a developing country. A bootstrap method for determining standard errors and confidence limits is described and implemented.
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