Why Does the Spot-Forward Discount Fail to Predict Changes in Future Spot Rates?

Charles Goodhart · Patrick C. McMahon · Yerima L. Ngama

18 citations0/0 files storedInternational Journal of Finance & Economics

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Monetary Policy and Economic Impact Financial Markets and Investment Strategies Global Financial Crisis and Policies

Abstract

We use the Phillips and Hansen (1990) modified procedure to estimate the cointegrating vector between Ft, the forward exchange rate, and St+1, the appropriate spot rate. We find that the coefficient β, from the equation, St+1 = α + βFt + εt+1 to be very close to, but significantly different from, 1 (at about 0.97), as we had expected on theoretical grounds. With β≠1, running the equation St+1 − St = α + β(Ft − St) + ut will involve misspecification, which will bias the measured value of β towards 0. © 1997 John Wiley & Sons, Ltd.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Imported from OpenAlex (CC0) — nothing here is generated.