Nonlinearity as an Explanation of the Forward Exchange Rate Anomaly

This paper shows that nonlinearity can provide an explanation for the forward exchange rate anomaly (Fama, 1984). Using sterling-Canadian dollar data, and modelling nonlinearity of unspecified form by means of a random field, we find strong evidence of time-wise nonlinearity and, significantly, obtain parameter estimates that conform with theory to a high degree of precision: the anomaly disappears.

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Year of publication:	2007-12-30
Authors:	Bond, Derek ; Hession, Niall ; Harrison, Michael J ; Edward J O’Brien
Institutions:	School of Economics, University College Dublin
Subject:	Forward exchange rate anomaly \| nonlinearity \| random field regression

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Extent:	application/pdf
Series:	Working Papers.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 200801 8 pages
Classification:	C22 - Time-Series Models ; F31 - Foreign Exchange
Source:	RePEc - Research Papers in Economics

Persistent link: https://ebvufind01.dmz1.zbw.eu/10005490162