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:	2008
Authors:	Bond, Derek ; Hession, Niall ; Harrison, Michael J. ; O'Brien, Edward J.
Publisher:	Dublin : University College Dublin, UCD School of Economics
Subject:	Forward exchange rate anomaly \| nonlinearity \| random field regression

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Series:	UCD Centre for Economic Research Working Paper Series ; WP08/01
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	74003278X [GVK] hdl:10419/71341 [Handle] hdl:10197/1272 [Handle] RePEc:ucn:wpaper:200801 [RePEc]
Classification:	C22 - Time-Series Models ; F31 - Foreign Exchange
Source:	EconStor

Persistent link: https://ebvufind01.dmz1.zbw.eu/10010292850