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Article

Forward Rate Bias in Developed and Developing Countries: More Risky Not Less Rational

by 1,*,†, 2,† and 1,†
1
School of Business and Economics, University of New Hampshire, 10 Garrison Avenue, Durham, NH 03824, USA
2
Capital Group, 333 South Hope Street, Los Angeles, CA 90071, USA
*
Author to whom correspondence should be addressed.
The authors are heavily indebted to the guest editors, Rocco Mosconi and Paolo Paruolo, for their generous help and many insights on improving the paper’s empirical analysis. We also thank the referees for useful comments and suggestions. We have also benefited from comments and reactions from Bruce Elmslie, Jay Horvath, Katarina Juselius, and participants of the University of New Hampshire’s research seminar. We are grateful to the Institute for New Economic Thinking (INET) and the University of New Hampshire for financial support.
Received: 10 April 2018 / Revised: 30 October 2020 / Accepted: 3 November 2020 / Published: 2 December 2020
(This article belongs to the Special Issue Celebrated Econometricians: Katarina Juselius and Søren Johansen)
This paper examines the stability of the Bilson–Fama regression for a panel of 55 developed and developing countries. We find multiple break points for nearly every country in our panel. Subperiod estimates of the slope coefficient show a negative bias during some time periods and a positive bias during other time periods in nearly every country. The subperiod biases display two key patterns that shed light on the literature’s linear regression findings. The results point toward the importance of risk in currency markets. We find that risk is greater for developed country markets. The evidence undercuts the widespread view that currency returns are predictable or that developed country markets are less rational. View Full-Text
Keywords: imperfect knowledge; Knightian Uncertainty; structural change; currency risky imperfect knowledge; Knightian Uncertainty; structural change; currency risky
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MDPI and ACS Style

Goldberg, M.D.; Kozlova, O.; Ozabaci, D. Forward Rate Bias in Developed and Developing Countries: More Risky Not Less Rational. Econometrics 2020, 8, 43. https://0-doi-org.brum.beds.ac.uk/10.3390/econometrics8040043

AMA Style

Goldberg MD, Kozlova O, Ozabaci D. Forward Rate Bias in Developed and Developing Countries: More Risky Not Less Rational. Econometrics. 2020; 8(4):43. https://0-doi-org.brum.beds.ac.uk/10.3390/econometrics8040043

Chicago/Turabian Style

Goldberg, Michael D., Olesia Kozlova, and Deniz Ozabaci. 2020. "Forward Rate Bias in Developed and Developing Countries: More Risky Not Less Rational" Econometrics 8, no. 4: 43. https://0-doi-org.brum.beds.ac.uk/10.3390/econometrics8040043

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