Forward Rate Bias in Developed and Developing Countries: More Risky Not Less Rational
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 du...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
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MDPI AG
2020-12-01
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| Series: | Econometrics |
| Subjects: | |
| Online Access: | https://www.mdpi.com/2225-1146/8/4/43 |
| _version_ | 1797545938403721216 |
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| author | Michael D. Goldberg Olesia Kozlova Deniz Ozabaci |
| author_facet | Michael D. Goldberg Olesia Kozlova Deniz Ozabaci |
| author_sort | Michael D. Goldberg |
| collection | DOAJ |
| description | 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. |
| first_indexed | 2024-03-10T14:23:02Z |
| format | Article |
| id | doaj.art-1a58f2bd6cc440fa8cf299d877a5ca67 |
| institution | Directory Open Access Journal |
| issn | 2225-1146 |
| language | English |
| last_indexed | 2024-03-10T14:23:02Z |
| publishDate | 2020-12-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Econometrics |
| spelling | doaj.art-1a58f2bd6cc440fa8cf299d877a5ca672023-11-20T23:12:38ZengMDPI AGEconometrics2225-11462020-12-01844310.3390/econometrics8040043Forward Rate Bias in Developed and Developing Countries: More Risky Not Less RationalMichael D. Goldberg0Olesia Kozlova1Deniz Ozabaci2School of Business and Economics, University of New Hampshire, 10 Garrison Avenue, Durham, NH 03824, USACapital Group, 333 South Hope Street, Los Angeles, CA 90071, USASchool of Business and Economics, University of New Hampshire, 10 Garrison Avenue, Durham, NH 03824, USAThis 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.https://www.mdpi.com/2225-1146/8/4/43imperfect knowledgeKnightian Uncertaintystructural changecurrency risky |
| spellingShingle | Michael D. Goldberg Olesia Kozlova Deniz Ozabaci Forward Rate Bias in Developed and Developing Countries: More Risky Not Less Rational Econometrics imperfect knowledge Knightian Uncertainty structural change currency risky |
| title | Forward Rate Bias in Developed and Developing Countries: More Risky Not Less Rational |
| title_full | Forward Rate Bias in Developed and Developing Countries: More Risky Not Less Rational |
| title_fullStr | Forward Rate Bias in Developed and Developing Countries: More Risky Not Less Rational |
| title_full_unstemmed | Forward Rate Bias in Developed and Developing Countries: More Risky Not Less Rational |
| title_short | Forward Rate Bias in Developed and Developing Countries: More Risky Not Less Rational |
| title_sort | forward rate bias in developed and developing countries more risky not less rational |
| topic | imperfect knowledge Knightian Uncertainty structural change currency risky |
| url | https://www.mdpi.com/2225-1146/8/4/43 |
| work_keys_str_mv | AT michaeldgoldberg forwardratebiasindevelopedanddevelopingcountriesmoreriskynotlessrational AT olesiakozlova forwardratebiasindevelopedanddevelopingcountriesmoreriskynotlessrational AT denizozabaci forwardratebiasindevelopedanddevelopingcountriesmoreriskynotlessrational |