Testing the forward rate unbiasedness hypothesis during the 1920s |
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Authors: | Panayiotis F. Diamandis Dimitris A. Georgoutsos Georgios P. Kouretas |
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Affiliation: | aDepartment of Business Administration, Athens University of Economics and Business, GR-10434 Athens, Greece;bDepartment of Accounting and Finance, Athens University of Economics and Business, GR-10434 Athens, Greece;cDepartment of Economics, University of Crete, University Campus, GR-74100 Rethymno, Greece |
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Abstract: | This paper reexamines the forward rate unbiasedness hypothesis (FRUH) during the 1920s and it contributes to the literature as follows: first, it utilizes a database that includes currencies not studied before, as well as the 3 month forward rates; second, it applies three different approaches to test for cointegration and it shows that the choice of the technique is not of crucial importance; third, it tests for the temporal stability of the cointegration results; finally, it tests for the existence of the FRUH in the short run, by means of error correction models, whereas previous studies focused on cointegrated vectors only. Our analysis shows that for countries that did not undergo major financial turmoil during that period, there exists more favorable evidence for the FRUH. |
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Keywords: | Forward rate unbiasedness hypothesis Cointegration Temporal stability |
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