Please use this identifier to cite or link to this item: http://hdl.handle.net/10553/107385
Title: Testing the forward volatility unbiasedness hypothesis in exchange rates under long-range dependence
Authors: Pérez Rodríguez, Jorge Vicente 
Andrada Félix, Julián 
Rachinger, Heiko
UNESCO Clasification: 530204 Estadística económica
Keywords: Exchange Rates
Forward Volatility Unbiasedness Hypothesis
Fractional Cointegration
Issue Date: 2021
Project: El Comportamiento de Los Mercados Cambiarios: Nueva Información, Capacidad Predictiva y Regímenes Cambiarios. 
Journal: North American Journal of Economics and Finance 
Abstract: This paper analyses the unbiasedness hypothesis between spot and forward volatility, using both the actual and the continuous path of realised volatility, and focusing on long-memory properties. For this purpose, we use daily realised volatility with jumps for the USD/EUR exchange rate negotiated in the FX market and employ fractional integration and cointegration techniques. Both series have long-range dependence, and so does the error correction term of their long-run relationship. Hence, deviations from equilibrium are highly persistent, and the effects of shocks affecting the long-run relationship dissipate very slowly. While for long-term contracts, there is some empirical evidence that the forward volatility unbiasedness hypothesis does not hold – and, thus, that forward implied volatility is a systematically downward-biased predictor of future spot volatility – for short-term contracts, the evidence is mixed.
URI: http://hdl.handle.net/10553/107385
ISSN: 1062-9408
DOI: 10.1016/j.najef.2021.101438
Source: North American Journal of Economics and Finance [ISSN 1062-9408], v. 57, 101438, (Julio 2021)
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