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An empirical investigation of the unbiased forward exchange rate hypothesis in a regime switching market

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Hidden Markov Models in Finance

Part of the book series: International Series in Operations Research & Management Science ((ISOR,volume 104))

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Summary

In this article we develop a model for exchange rate dynamics in an economy that exhibits regime shifts. The switching of regimes is modulated by a Markov chain in discrete time. A description of the foreign exchange market and of its stylised features is given. Finally, unbiased forward exchange rate hypothesis (UFER) is tested in the context of the US-dollar/UK-pound spot and forward exchange rates.

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Author information

Authors and Affiliations

  1. Department of Mathematics, Statistics, Computing & Applications and Faculty of Economics and Business Administration, University of Bergamo, Italy

    Emilio Russo

  2. CARISMA and Department of Economics and Finance, Brunel Business School, Uxbridge, Middlesex, UK

    Fabio Spagnolo

  3. Department of Statistical and Actuarial Sciences, The University of Western Ontario, London, Ontario, Canada

    Rogemar Mamon

  4. CARISMA and Department of Mathematical Sciences, Brunel University, Uxbridge, Middlesex, UK

    Rogemar Mamon

Authors
  1. Emilio Russo
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  2. Fabio Spagnolo
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  3. Rogemar Mamon
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Corresponding author

Correspondence to Emilio Russo .

Editor information

Editors and Affiliations

  1. University of Western Ontario, London, Canada

    Rogemar S. Mamon

  2. University of Calgary, Calgary, Canada

    Robert J. Elliott

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© 2007 Springer Science+Business Media, LLC

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Russo, E., Spagnolo, F., Mamon, R. (2007). An empirical investigation of the unbiased forward exchange rate hypothesis in a regime switching market. In: Mamon, R.S., Elliott, R.J. (eds) Hidden Markov Models in Finance. International Series in Operations Research & Management Science, vol 104. Springer, Boston, MA. https://doi.org/10.1007/0-387-71163-5_9

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