Nonlinearity as an explanation of the forward exchange rate anomaly

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Title: Nonlinearity as an explanation of the forward exchange rate anomaly
Authors: Bond, D. (Derek)
Hession, Niall
Harrison, Michael J.
O'Brien, Edward J. (Edward Joseph)
Permanent link: http://hdl.handle.net/10197/1272
Date: Jan-2008
Abstract: 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.
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Series/Report no.: UCD Centre for Economic Research Working Paper Series; WP08/01
Keywords: Forward exchange rate anomalyNonlinearityRandom field regression
Subject LCSH: Foreign exchange
Nonlinear theories
Random fields
Other versions: http://www.ucd.ie/economics/research/papers/2008/WP08.01.pdf
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Working Papers & Policy Papers

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