Testing the Persistence of the Forward Premium: Structural Changes or Misspecification?

Tsung Wu Ho, Wan Shin Mo*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)


This study investigates whether the ignored structural break causes the forward premium non-stationary. This paper proposes to test for the presence of unit root with multiple structural breaks. We find that, as long as the dynamic lag structure is specified, the forward premium exhibits a non-stationary process even if structural breaks are accounted for and points to no evidence of moving toward stationarity. Given our findings, the structural change model seems less robust in explaining the forward premium puzzle.

Original languageEnglish
Pages (from-to)119-138
Number of pages20
JournalOpen Economies Review
Issue number1
Publication statusPublished - 2016 Feb 1
Externally publishedYes


  • Forward premium puzzle
  • Forward rate unbiasedness hypothesis
  • Persistence
  • Predictability
  • Unit roots with structural changes

ASJC Scopus subject areas

  • Economics and Econometrics


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