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An Empirical Analysis of Relationships between the Forward Exchange Rates and Present and Future Spot Exchange Rates Example of CZK/USD and CZK/EUR

Author

Listed:
  • Josef Arlt

    (Faculty of Informatics and Statistics, University of Economics, Prague, Czech Republic)

  • Martin Mandel

    (Faculty of Finance and Accounting, University of Economics, Prague, Czech Republic)

Abstract

The aim of this paper is to present an empirical analysis of the relationships between the forward and spot exchange rates in the Czech Republic. The forward rate unbiasedness hypothesis, the expectation hypothesis, the adaptive expectation hypothesis and the hypothesis of covered interest rate parity are formulated in this paper. To test the first two hypotheses the econometric procedure based on co-integration and weak exogeneity testing is proposed. The third and fourth hypotheses are verified by the Engle-Granger co-integration test. The estimates do not support the forward rate unbiasedness hypothesis. On the contrary, the results confirm the hypothesis of adaptive expectation and the hypothesis of covered interest rate parity.

Suggested Citation

  • Josef Arlt & Martin Mandel, 2017. "An Empirical Analysis of Relationships between the Forward Exchange Rates and Present and Future Spot Exchange Rates Example of CZK/USD and CZK/EUR," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 67(3), pages 199-220, June.
    • Handle: RePEc:fau:fauart:v:67:y:2017:i:3:p:199-220
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    References listed on IDEAS

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    Cited by:

    1. Josef Arlt & Martin Mandel, 2019. "Determinanty forwardového kurzu a role rizikových prémií (příklad měnových párů czk/eur a czk/usd) [Determinants of Forward Exchange Rate and the Role of Risk Premiums (Case of CZK/EUR and CZK/USD ," Politická ekonomie, Prague University of Economics and Business, vol. 2019(5), pages 476-489.

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    More about this item

    Keywords

    forward and spot exchange rates; unbiasedness hypothesis; interest rate differentials; co-integration; exogeneity;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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