Investigating the forward rate unbiasedness puzzle: Evidence from a meta-analysis

Crawford School of Public Policy | Australia-Japan Research Centre

Event details

Public Seminar

Date & time

Wednesday 12 September 2018


Seminar Room 5, Crawford School of Public Policy, #132 Lennox Crossing, ANU
Crawford School


Diana Žigraiová


Thomas Home

The aim of the presentation is to provide the first results from systematic overview of the forward rate unbiasedness literature using meta-regression analysis. Empirical testing for the forward rate unbiasedness condition (FRUC) has led to one of the most well-known puzzles in empirical finance that concerns frequent rejection of the hypothesis that forward exchange rate is an unbiased predictor of future spot exchange rate. The literature has raised many possible reasons behind the FRUC rejection which include purely statistical reasons (violation of stationary), existence of highly variable risk premia and monetary authority interventions. Moreover, results of the FRUC testing have been shown to be forward rate horizon length, currency and exchange rate regime dependent as well. To quantitatively summarise the existing FRUC literature we have thus far collected close to 2000 empirical estimates from 50 studies that investigate the relationship. Next, we test for presence of publication selectivity and identify the key factors behind the sign and magnitude of the empirical estimates.

Diana Žigraiová is a PhD candidate in Economics at Charles University in Prague. In her research, Diana focuses on various topics in financial economics. During her doctoral studies she has co-authored five articles published in international impacted economic journals, including Journal of Financial Stability and Journal of Economic Surveys. In addition to her research visit to Crawford School of Public Policy Diana has completed an internship at the OECD, held a visiting student researcher position at University of California Berkeley and worked at the Czech National Bank.

A light lunch will be provided.

The AJRC Seminar Series is a forum for researchers to engage on issues relevant to Japan. Topics include, but are not limited to, economics, international relations, politics, and national security. Seminars are typically very frank and early stage studies are most welcome.

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