Asymmetry in forward exchange rate bias: A puzzling result |
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Authors: | Yangru Wu Hua Zhang |
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Institution: | aDepartment of Economics, West Virginia University, Morgantown, WV 26506-6025, USA;bDepartment of Finance, The Chinese University of Hong Kong, Shatin, NT, Hong Kong |
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Abstract: | In this paper we document that the hypothesis that the forward exchange rate discount is an unbiased predictor of future currency depreciation holds in periods when the forward US dollar is quoted at a premium against the Japanese yen and the Deutschmark, but fails when it is quoted at a discount for the post-Bretton Woods floating exchange rate era. Moreover, the observed asymmetry is statistically significant. This puzzling result remains to be explained. |
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Keywords: | Unbiasedness hypothesis Forward market efficiency |
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