the spot and forward exchange rates some empirical evidence of singapore this paper studies the foreign exchange market of singapore it examines the hypotheses that the spot exchange rate follows a random walk and that the exoected value of the future spot rate is the current forward rate using various powerful tests that have been developed recently in the economietric literature we reject the two hypotheses convincingly

testing the unbiasedness hypothesis in the forward foreign exchange market a specification analysis abstract this paper evaluates two popular regression methods of testing the unbiasedness hypothesis in the forward foreign exchange market for the 30 day canada united states forward foreign exchange market the evidence overwhelmingly indicates that it is inappropriate to treat the structure of the systematic and stochastic components of the test relations as constant over time hence conclusions inferred from parameter significance testing based upon full sample estimation can be very misleading accordingly we argue for a specification analysis of the test relations and more explicit modelling of market fundamentals

a reexamination of purchasing power parity a multicountry and multiperiod study abstract this paper re examines the purchasing power parity ppp theory in a multiple exchange rate world owing to a lack of precision in estimating the parameters many authors concluded that ppp did not hold very well in the 1970s using a time series cross sectional estimation procedure we are unable to reject the hypothesis that ppp holds in several currencies simultaneously in addition the parameters are precisely estimated this result follows from the estimation procedure which allows us to exploit the cross sectional variation in the data and the contemporaneous correlation in the deviations from ppp

purchasing power parity modeling and testing mean reversion abstract a model of mean reversion of exchange rates to purchasing power parity is developed and tested where exchange rates are assumed to follow a mean reverting elastic random walk toward a stochastic ppp rate the model recognizes the possibility that mean reversion towards ppp may be nonlinear which allows greater flexibility in the adjustment process regression equations consistent with the theoretical model are derived the model is tested using long and short term data for six countries while the results are generally consistent with the findings of previous studies evidence is presented which demonstrates that the mean reversion process is not linear for some countries

national price levels purchasing power parity and cointegration a test of four high inflation economies abstract the time series properties of exchange rates and wholesale prices from four high inflation countries show some evidence in support of purchasing power parity tests for stationarity of real exchange rates and cointegration among price and exchange rate variables are presented for argentina brazil chile and israel during the 1970s and 1980s error correction models describe the mechanism of adjustment to long run equilibrium

stocks flows and some exchange rate dynamics for the currency substitution model abstract the paper argues that the treatment of stocks and flows in portfolio balance models of exchange rate determination is inadequate and that this hampers the analysis of exchange rate dynamics a proposed resolution is reworked into the currency substitution model in addition to providing explicit solutions for the spot rate of exchange depreciation under different expectational hypotheses an attempt is made to clarify the dynamic properties of the model inter alia it is shown how exchange rate overshooting is possible without having to assume market frictions how a deteriorating current account deficit can coexist with an appreciating exchange rate and more generally how portfolio induced jumps in the exchange rate are linked to balance of payments flow influences on the evolution of the exchange rate

exchange rate models and innovations abstract an explicit relationship between innovations in the spot exchange rate and innovations in its driving variables is derived in the context of the asset market theory of the exchange rate the relationship forms a theoretical basis for regression results in news form that have been reported in the literature

management ownership and market valuation an empirical analysis we investigate the relationship between management ownership and market valuation of the firm as measured by tobin s q in a 1980 cross section of 371 fortune 500 firms we find evidence of a significant nonmonotonic relationship tobin s q first increases then declines and finally rises slightly as ownership by the board of directors rises for older firms there is evidence that q is lower when the firm is run by a member of the founding family than when it is run by an officer unrelated to the founder

the speculative efficiency hypothesis the hypothesis that forward prices are the best unbiased forecast of future spot prices is often presented in the economic and financial analysis of futures markets this paper considers the hypothesis independently of its implications for rational expectations or market efficiency and in order to stress this fact the term speculative efficiency is used to characterize the state envisaged under the hypothesis if a market is subject to efficient speculation the supply of speculative funds is infinitely elastic at the forward price that is equal to the expected future spot price the expected future spot price is a market price determined as the solution to the underlying rational expectations macroeconomic model although the paper is primarily concerned with testing this hypothesis in the foreign exchange market the methodology introduced in the paper is of general application to all futures markets this abstract was borrowed from another version of this item

the collapse of purchasing power parities during the 1970 s one of the striking facts concerning the relationship beiveen prices and exchange rates during the 1970 s has been the dismal performance of the predictions of the simple versions of the purchasing power parity doctrine ppp that doctrine in its absolute version states that the equilibrium exchange rate between domestic and foreign currencies equals the ratio of domestic to foreign price levels the relative version of the doctrine relates equilibrium changes in exchange rates to changes in the ratio of domestic to foreign prices during the 1970 s short run changes in exchange rates bore little relationship to short run differentials in national inflation rates and frequently divergences from purchasing power parities have been cumulative this paper reviews and analyzes the empirical record of exchange rates and prices during the 1970 s and the analysis is based on the experience of the dollar pound the dollar frecch franc and the dollar dm exchange rates section 2 presents the evidence on ppp during the 1970 s and contrasts it with the evidence from the 1920 s a period during which the doctrine held up reasonably well this analysis is relevant for assessing whether the flexible exchange rate system was successful in providing national economies with an added degree of insulation from foreign shocks and whether it provided policymakers with an added instrument for the conduct of macroeconomic policy the evidence regarding devia tions from purchasing power parities is also relevant for determining whether there is a case for managed float section 3 attempts to explain what went wrong with

testing for news in foreign exchange markets abstract traditional tests of the role of interest rate news on foreign exchange rates are analysed and found to be of little empirical value

news shocks in the data olympic games and their macroeconomic effects we examine the macroeconomic effects of bidding for the olympic games using panel data for 188 countries during the period 1950 2009 our findings confirm that economies react to news shocks investment consumption and output significantly increase 9 to 7 years before the actual event in bidding countries hosting countries also experience significant increases in investment consumption and output 5 to 2 years before the hosting of the games mapping the olympics into a macroeconomic model we show that we can match our empirical findings if we assume that an olympic bid represents news about increases in government investment

an empirical analysis of the determination of house prices in the united kingdom between the first quarters of 1970 and 1980 the average price of new houses in the united kingdom increased five fold over the same period building societies grew to become major financial institutions attracting almost 50 per cent of the personal sector s holdings of liquid assets and responsible for more than 85 per cent of house purchase finance this paper sets out to examine the extent to which building societies have been responsible for the rapid acceleration of house prices and indicates the other main determinants of this phenomenon the analysis is extended to a discussion of recent econometric research into house price determination and arrives at a more general specification employing an error correction estimation methodology

us money announcements and covered interest parity the case of japan abstract this paper examines the effects of us money announcements on dollar and yen denominated securities in their respective onshore markets the effects are consdered over several periods corresponding to possible us and japanese policy regimes the consistency of the responses is further examined by testing whether the responses of dollar denominated securities yen denominated securities the spot yen dollar exchange rate and the forward yen dollar exchange rate violate covered interest parity given the results of previous studies the evidence suggests that restrictions on capital mobility in japan have not allowed complete international integration of japanese financial markets

real exchange rate behavior abstract using random simulations with artificial data with identical sample characteristics to the long sample exchange rate data employed by lothian and taylor lothian j r and taylor m p 1996 the recent float from the perspective of the past two centuries journal of political economy 104 488 509 we show that standard unit root tests have extremely low power over sample sizes corresponding to the recent float the probability of rejecting the null hypothesis when it is false is extremely low with 20 years or even 50 years of data and only reaches an acceptable level over much longer spans

purchasing power parity in the short and long run a reappraisal of the post 1973 evidence in this paper an attempt is made to separate the short run and long run aspects of the purchasing power parity ppp relationship using the techniques of band spectral regression and cointegration for eight industrialized countries the long run ppp is first tested for all the eight countries with reference to their nominal bilateral exchange rates vis a visthe us dollar for five european currencies the analysis is repeated with respect to the deutschmark with a separate consideration of the post ems period in the concluding sections possible reasons for ppp deviations are examined

an empirical examination of long run purchasing power parity as theory of international commodity arbitrage an empirical analysis of long run purchasing power parity ppp as a theory of international commodity arbitrage between uk and us prices and the sterling us dollar exchange rate for the period 1975 1980 is presented econometric techniques concerning the cointegration of economic time series are applied to a sample of 35 manufactured commodities which in 1977 constituted approximately a quarter of the net output of all manufacturing industry in great britain our results are extremely unfavourable to the ppp hypothesis as a stable long run proportionality between exchange rates and disaggregated prices

the foreign exchange market in a highly open developing economy the case of singapore abstract the purpose of this paper is to examine the foreign exchange market of singapore from the perspective of market efficiency and further to determine if factors such as the unanticipated changes in interest rate differentials and purchasing power parity play a role in the behavior of the exchange rate using a variety of tests it is shown that the singapore market despite its relatively small size displays many of the same characteristics observed in the markets of developed countries this is taken as a confirmation of the general nature of the empirical regularities found in studies of such markets

exchange rates and news a multi currency approach abstract in this paper a multi currency model is used to investigate the relationship between spot exchange rates forward rates market efficiency and new information it is shown that in a world with more than two countries the error term in the standard market efficiency tests will be correlated across rates it is also shown that the exchange rate can be expressed as a function of factors known in advance which are captured by the forward rate determined in the previous period and news the empirical results presented in the paper tend to support the model s implications

a note on the determinants of unexpected exchange rate movements abstract in this paper we study the relative importance of surprises in fundamentals in explaining unexpected exchange rate movements employing a unique survey dataset that contains matched exchange rate and interest rate expectations we are able to derive a number of interesting conclusions a variance decomposition of unexpected exchange rate movements into various components reveals that interest rate news is relatively unimportant but that changes in perceptions about risk premia and more importantly revisions of expectations with regard to future exchange rate levels are crucial in explaining unexpected exchange rate movements

balance of trade announcements and movements in exchange rates there is a growing literature on the effect of economic news on foreign exchange rates the effects of weekly money supply announcements on exchange rates have been empirically investigated by a number of researchers over a variety of periods 1 2 3 4 7 11 12 13 the response of foreign exchange rates to other types of economic information has also been studied for example dornbusch 5 uses innovations in the current account cyclical factors and interest rates frenkel 10 uses innovations in interest rate differentials edwards 6 uses innovations in money real output and real interest rates most recently hardouvelis 14 studies the market response of three interest rates and seven exchange rates to economic news on fifteen economic aggregates including monetary announcements inflation rate announcements and announcements reflecting the stage of the business cycle this paper studies short run movements in foreign exchange rates to the commerce department s monthly announcements of the u s balance of merchandise trade it extends previous studies of foreign exchange response to economic news in three ways first by studying the response to the trade announcement which occurs two months after the month to which the announcement refers the paper provides a more precise measure of the response to the news content of trade related announcements than earlier studies this for instance is an improvement over dornbusch s 5 definition of current account news as the innovation in the actual oecd organization for economic co operation and development biannual current account estimates second the paper studies not only movements in spot rates to the announcement but calculates the movements in forward premiums to this information by studying the response in forward premiums to the merchandise trade announcements the paper examines whether the information in the announcements implies effects that operate through capital flows and interest rates in addition to responses that operate through the flow of merchandise trade

variance ratio tests of random walk for foreign exchange rates abstract the paper presents variance ratio tests of the random walk hypothesis for foreign exchange rates the data correspond to weekly exchange rates for four foreign currencies british pound german mark japanese yen and swiss franc it is found that the series contain large permanent component and small temporary component which suggests that exchange rates follow a random walk

import pricing and the trade balance in a popular model of exchange rate determination abstract this paper extends a popular model of exchange rate determination to include an import pricing relationship that is consistenc with imperfect competition in the importable sector the analysis highlights how import pricing behavior and aggregate macroeconomic relationships interact in determining the dynamics of the exchange rate the price of imports and the trade balance a basic prediction of the analysis is that an increase in the substitutability of imported product varieties in the domestic market will raise the responsiveness of the exchange rate and dampen the responsiveness of the trade account to monetary shocks

post bretton woods deviations from purchasing power parity in g7 exchange rates an empirical exploration abstract exchange rates have deviated substantially and idiosyncratically from purchasing power parity ppp since the breakdown of bretton woods in this paper a model incorporating both traditional ppp and financial market variables is constructed and tested on the us dollar s six g7 exchange rates during the floating rate era empirical tests show that the model s common set of variables with consistent signs can explain the divergent behavior of g7 exchange rates during 1973 2 90 2 idiosyncracies are reflected in different subsets of the model s variables entering significantly into each exchange rate s regression the existence of stable relationships is demonstrated by the equations co integration

a model of speculative efficiency with news error components this paper proposes a theoritical model to assess of news on the spot forward exchange rate relationship and thereby predicts of the impact of news on the exchange rate two types of news are analysed rational expectations type innovations and announcement effects form newspapers by using historical data form a time period which includes the german hyperinflation of the early 1920s an estimate from of the model is derived which is substantially simpler than the version requried using contemporary data preliminary results support the main theoretical predictions but also cast some doubt on a literal interpretation of the exchange rate model plus rational expectations

empirical determinants of purchasing power parity deviations abstract this paper investigates the empirical determinants of purchasing power parity ppp deviations over the recent period of flexible exchange rates transitory ppp deviations arise in a world in which prices are sticky but where exchange rates respond instantaneously to news permanent ppp deviations occur when price indices differ across countries and the world is subject to real shocks regressions consistent with the hypothesis that current exchange rate changes create immediate ppp deviations which are slowly dissipated but not eliminated imply that both sticky prices and real shocks are responsible for the recent failure of ppp

the j curve effect and us agricultural and industrial trade this paper examines the j curve hypothesis for us agricultural and manufactured goods using the shiller lag model the results support the j curve effect for agricultural goods but not for manufactured goods these findings explain why many studies in the literature fail to support the j curve phenomenon there are two explanations for these findings 1 the aggregation bias of data that combine both agricultural and manufactured goods and 2 the country under study is often an industrial nation like the us or japan with a high proportion of manufactured goods in both exports and imports

money supply announcements interest rates and foreign exchange abstract this paper presents a test of the joint hypothesis that money supply announcements affect the real interest rate and that changes in the real interest rate affect the exchange rate in the short run the test results are consistent with the joint hypothesis for example it is found that announcement of an unexpected jump in the money supply is accompanied by an increase in interest rates and an appreciation of the dollar if the rise in interest rates was entirely due to higher inflationary expectations the dollar should not appreciate

arbitrage cointegration and testing the unbiasedness hypothesis in financial markets we use a no arbitrage cost of carry asset pricing model to show that the existence of coin tegration between spot and forward futures prices depends on the time series properties of the cost of carry we argue that the conditions for cointegration are more likely to hold in currency markets than in commodity markets explaining many of the empirical results in the literature we also use this model to demonstrate why the forward rate forecast error the basis and the forward premium are serially correlated and to develop econometric tests ofthe unbiasedness hypothesis sometimes called the simple efficiency hypothesis in various financial markets the unbiasedness hypothesis is so prevalent in the finance liter ature that many tests for it have been developed we examine four of the common tests and and use our cointegration results to demonstrate why each of these tests should reject the null hypothesis of unbiasedness we find strong support for our hypothesis in the existing empirical literature

the monetary exchange rate model as a long run phenomenon abstract pure time series based tests fail to find empirical support for monetary exchange rate models in this paper we apply pooled time series estimation on a forward looking monetary model resulting in parameter estimates which are in compliance with the underlying theory based on a panel version of the engle and granger engle r f granger c w j 1987 co integration and error correction representation estimation and testing econometrica 55 251 276 two step procedure we find that the residuals of the panel based estimated monetary model are stationary this indicates that on a pooled time series level there is cointegration between the exchange rate and the macroeconomic fundamentals of this monetary model

exchange rate models and exchange rate expectations an empirical investigation a non parametrictest of popular modern exchange rate models under alternative expectation specifications is presented it is found that there is little difference in the predictive success of the alternative exchange rate models however there are significant differences in the performance of a model depending upon the expectations mechanism specified our most important finding is that the flexible price monetary model the portfolio balance model and a hybrid model under extrapolative and adaptive expectations mechanisms provide statistically significant information about the direction of exchange rate movements by contrast the same models when employing static regressive and rational expectation mechanisms do not provideany satistically significant information

minute by minute efficiency normality and randomness in intra daily asset prices in this study we test the efficiency of asset markets at intervals as short as 30 seconds we also describe the properties of a simple new stochastic process as a potential model of the behaviour of asset prices and test it on intra daily deutsche mark futures prices according to this process asset prices are constant between economically relevant events which occur at the random times generated by a poisson process at the moments of these events prices jump to new values the size of the jump is drawn from a normal distribution tests of this process indicate that it cannot be rejected for most of the days in the sample

an empirical inquiry into the nature of the forward exchange rate bias abstract this paper tests whether anticipated real exchange rate movements fully account for the systematic time varying discrepancies between forward and future spot exchange rates the data do not reject this hypothesis the results demonstrate that 1 real exchange rate changes are predictable 2 anticipated real exchange rate changes are reflected in the forward bias and 3 information available at the signing of the forward contract is useless in forecasting differences between forward and future spot prices beyond the information s ability to predict real exchange rate changes the results emphasize the importance of real exchange rates in international asset pricing

the impact of monetary regime changes some exchange rate evidence abstract lucas has argued that coefficient changes can be explained by changing expectations caused by the policy regime shifts this paper provides evidence consistent with the lucas critique using an efficient markets news framework kalman filter results show that surprise relative u s monetary expansion is associated both with periods of u s depreciation and appreciation i show that variables representing changes in monetary policy regimes can explain a substantial fraction of the movements in the time varying parameter

syndicated euro credit sovereign risk assessments market efficiency and contagion effects this study investigates the informational efficiency of the syndicated euro credit market by analyzing the adjustment of spreads to news characterizing the state of sovereign borrowers creditworthiness in addition the potential for an interlinked crisis contagion effects between three major borrowing countries is examined that is contagion tests are conducted to see how news for one borrower affects the spreads charged to the others the evidence suggests that the euro credit pricing process has been informationally efficient however with respect to the contagion effects it was found that noncountry specific risk factors systematically influence country specific spreads

exchange rate based stabilization in latin america abstract this paper examines the use of the exchange rate as a nominal anchor for achieving price stability in latin america it will explore the impact of exchange rate anchoring on the real sector by analyzing five stabilization programs the paper will identify conditions that make exchange rate based stabilization successful and those that lead to its failure it will also demonstrate that while the income effect can be instrumental in describing consumption booms associated with exchange rate based stabilizations the popular view based on the credibility hypothesis fails to explain key events associated with such programs

flexible exchange rates prices and the role of news lessons from the 1970s recent experience with flexible exchange rate systems has led to renewed interest in the operation of foreign exchange markets as reflected in many recent studies of the principal determinants of exchange rates the 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century since the bretton woods conference into a regime of flexible though managed rates as a consequence of the emergence of the new legal and economic system traders national governments and international organisations were confronted with new economic problems choices and instruments during the 1970s ex change rates fluctuated widely and inflation rates accelerated the international monetary system had to accommodate extraordinarily large oil related shocks which affected trade flows in goods and assets huge oil payments had to be recycled uncertainties concerning future developments in international politics reached new heights and the prospects for the world economy got gloomier these developments placed unprecedented pressures on the markets for foreign exchange as well as on other asset markets they were associated with a large slide in the value of the us dollar and resulted in speeding up the creation of new institutions like the european monetary system which provided the formal framework for the management of exchange rates among members

on jump processes in the foreign exchange and stock markets exchange rates exhibit systematic discontinuities even after allowingfor conditional heteroskedasticity in the diffusion process the results are much more significant in theforeign exchange market than in the stock market which suggests differences in the structure of these markets finally this jump component is shown to explain some of the empirically observed mispricings in the currency options market the objective of this article is to analyze and compare the empirical distribution of returns in the stock market and in the foreign exchange market there are a number of reasons why a better understanding of the stochastic processes driving prices in these markets would be useful many financial models rely heavily on the assumption of a particular stochastic process while relatively little attention is paid to the empirical fit of the postulated distribution as a result models like option pricing models are applied indiscriminately to various markets such as the stock market and the foreign exchange market when the underlying processes may be fundamentally different the foreign exchange market for instance is characterized by active exchange rate man

the cost of a central bank leaning against a random walk abstract using a stochastic model we show that a central bank is expected to suffer a loss when it temporarily affects the exchange rate by sterilized intervention against a random walk we also demonstrate that the methodology used in several studies of the profitability of official central bank intervention biases their results towards finding positive profits this bias created by only observing periods where cumulative intervention sums to zero accounts for the seemingly contradictory empirical results of several intervention profitability studies

inflation news and exchange rates abstract this paper presents a new test of the purchasing parity theory by investigating the announcement effect of unexpected inflation on the exchange rate of the us dollar against three european currencies the evidence presented does not support the theory at least in the very short run

the ecu as international money abstract the ecu is compared with alternative foreign currencies to determine how adequately it performs the various functions of international money for the period april 1979 through december 1984 it is found that for most european economic agents the ecu was superior to the sdr the us dollar and a representative foreign currency the netherlands guilder as a unit of account as a store of value and as a means of deferred payment an examination is made of the distribution of the series of exchange rate changes so that appropriate statistical methods are employed in making a final assessment about the variability of the ecu

a panel project on purchasing power parity mean reversion within and between countries abstract previous time series studies have shown evidence of mean reversion in real exchange rates deviations from purchasing power parity ppp appear to have half lives of approximately four years however the long samples required for statistical significance are unavailable for most currencies and are potentially inappropriate because of regime changes in this study we re examine deviations from ppp using a panel of 150 countries and 45 annual post wwii observations our panel shows strong evidence of mean reversion that is similar to that from long time series ppp deviations are eroded at a rate of approximately 15 annually i e their half life is around four years such findings can be masked in time series data but are relatively easy to find in cross sections

beyond the purchasing power parity testing for cointegration and causality between exchange rates prices and interest rates abstract this paper reexamines the causality between the dollar and the yen in a multivariate framework with the aid of cointegration and error correcting modeling for the 1951 94 period the phillips perron tests and johansen s tests are performed while causality from interest rates to exchange rates is found in the short run no causality between prices and exchange rates is found in the short run however causality is found running from relative prices to exchange rates along with interest rates between the u s and japan in the long run which supports the long run ppp hypothesis

stock market reactions to announcements of the board of directors evidence from italy the board of directors plays an important role in corporate governance it is an internal mechanism that controls and monitors the actions of managers and aligns the utility functions between corporate owners and managers the board of directors performs multiple functions that concern for example the replacement of the managers financial policy the preparation of strategic plans and other actions that affect the performance of the company the board plays an important role since on the one hand it controls the actions of management and on the other it advises the management regarding the strategies to be adopted in this study 100 announcements regarding the appointment of the board of directors of 100 italian listed companies during the period 2012 2014 are investigated the results show a positive reaction within 20 days around the announcement date in four of the six time windows cumulative abnormal returns cars are positive and statistically significant the positive reaction of the market w

the pound sterling us dollar exchange rate and the new abstract the theory that the exchange rate responds to the news content of the fundamental variables is tested the innovations in the monetary approach variables are proxied by arima residuals and the reduced form equation for the exchange rate is fitted by 2sls

the structure of ownership and the theory of the firm the separation of ownership from control produces a condition where the interests of owner and of ultimate manager may and often do diverge and where many of the checks which formerly operated to limit the use of power disappear in creating these new relationships the quasi public corporation may fairly be said to work a revolution it has divided ownership into nominal ownership and the power formerly joined to it thereby the corporation has changed the nature of profit seeking enterprise 1

forward implications of a simple stochastic asset market model abstract the behavior of forward rates in a simple stochastic asset market model is investigated theoretically empirical estimates from the foreign exchanges show the model to be of relevance

searching for stationarity purchasing power parity under the current float abstract using panel data methods we investigate long run purchasing power parity by testing for unit roots in real exchange rates of industrial countries under the current float the evidence against the unit root hypothesis is stronger for larger than for smaller panels for monthly than for quarterly data and when the german mark rather than the united states dollar is used as the base currency while we find that accounting for serial correlation considerably weakens the evidence against the unit root null the results as a whole are consistent with long run purchasing power parity

understanding the empirical literature on purchasing power parity the post bretton woods era abstract this paper argues that the empirical failure of statistical tests of ppp in post bretton woods data is largely due to the low power of the tests employed this result is demonstrated using monte carlo experiments on the size and power of different testing procedures a new procedure based on horvath and watson econometric theory 11 pp 984 1014 1995 has greater power than previous approaches using the horvath watson procedure we find moderate evidence in favor of ppp in the post bretton woods era