Structural change in the forward discount: Implications for the forward rate unbiasedness hypothesis

@inproceedings{Sakoulis2000StructuralCI,
  title={Structural change in the forward discount: Implications for the forward rate unbiasedness hypothesis},
  author={Georgios Sakoulis and Eric Zivot and Kyongwook Choi},
  year={2000}
}
It is a well-accepted empirical result that forward exchange rate unbiasedness is rejected in tests using the "differences regression" of the change in the logarithm of the spot exchange rate on the forward discount. We model the forward discount as an AR(1) process and argue that its persistence is exaggerated due to the presence of structural breaks. We show using a stochastic multiple break model that the forward discount persistence is substantially less if one allows for multiple… CONTINUE READING

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