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The unbiasedness of the forward exchange rate: evidence from the 1920s

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  • Salim Darbar

Abstract

The relationship between the spot and forward exchange rates during the 1920s is reexamined for five major currencies with daily data. Johansen's (1988, 1991) methodology is used to test for cointegration between spot and forward exchange rates. The results show that the spot and forward exchange rates are cointegrated with a cointegrating vector of one, providing evidence in support of the unbiasedness of the forward exchange rate and market efficiency. Johansen's method provides stronger evidence in favour of the unbiasedness hypothesis compared to the residual based single equation OLS approach.

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  • Salim Darbar, 1994. "The unbiasedness of the forward exchange rate: evidence from the 1920s," Applied Economics Letters, Taylor & Francis Journals, vol. 1(3), pages 49-53.
    • Handle: RePEc:taf:apeclt:v:1:y:1994:i:3:p:49-53
    DOI: 10.1080/135048594358294
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    1. Diamandis, Panayiotis F. & Georgoutsos, Dimitris A. & Kouretas, Georgios P., 2008. "Testing the forward rate unbiasedness hypothesis during the 1920s," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(4), pages 358-373, October.
    2. R.D. Rossiter, 2002. "Term structure of forward exchange premiums: evidence from the 1920s," Journal of Economic Studies, Emerald Group Publishing, vol. 29(1), pages 33-47, January.
    3. Razzaque Bhatti & Imad Moosa, 1995. "An alternative approach to testing uncovered interest parity," Applied Economics Letters, Taylor & Francis Journals, vol. 2(12), pages 478-481.

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