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All Graduate Theses and Dissertations, Spring 1920 to Summer 2023

Theses/Dissertations

2010

Unbiasedness hypothesis

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Three Essays In Forward Rate Unbiasedness Hypothesis, Devalina Chatterjee May 2010

Three Essays In Forward Rate Unbiasedness Hypothesis, Devalina Chatterjee

All Graduate Theses and Dissertations, Spring 1920 to Summer 2023

The objective of this dissertation is to verify and explain the forward exchange rate unbiasedness hypothesis in the foreign exchange market. Since in most of the cases the unbiasedness hypothesis fails to hold, we try to provide three different explanations of this puzzling behavior in the three essays. The first essay tries to resolve the forward premium puzzle by addressing the model misspecification issue and thereby adding a time-varying risk premium term in the percentage change specification. The risk premium term is modeled using the GARCH-M representation and the model is estimated by applying a GARCH (1, 1) specification. The …