TY - JOUR
T1 - Testing the Persistence of the Forward Premium
T2 - Structural Changes or Misspecification?
AU - Ho, Tsung Wu
AU - Mo, Wan Shin
N1 - Publisher Copyright:
© 2015, Springer Science+Business Media New York.
PY - 2016/2/1
Y1 - 2016/2/1
N2 - 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.
AB - 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.
KW - Forward premium puzzle
KW - Forward rate unbiasedness hypothesis
KW - Persistence
KW - Predictability
KW - Unit roots with structural changes
UR - http://www.scopus.com/inward/record.url?scp=84954405072&partnerID=8YFLogxK
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U2 - 10.1007/s11079-015-9365-9
DO - 10.1007/s11079-015-9365-9
M3 - Article
AN - SCOPUS:84954405072
SN - 0923-7992
VL - 27
SP - 119
EP - 138
JO - Open Economies Review
JF - Open Economies Review
IS - 1
ER -