Empirical Analysis of the Speculative Efficiency Hypothesis

LU, XIANGYU (2012) Empirical Analysis of the Speculative Efficiency Hypothesis. [Dissertation (University of Nottingham only)] (Unpublished)

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Abstract

Exchange market is one of the most important financial markets. An accurate prediction for future spot exchange rate is curial for modern businesses, specially the multinational enterprises, to hedge the volatility of currency exchange rate. The exchange rate also influence countries’ import and export significantly. If the home currency appreciates, this fact will significantly increase the amount of import and reduce the amount of export. In the opposite, any depreciation will help boosting the export and inhibit the import behaviour. Consequently, a mechanism of efficient forward exchange rate estimation is necessary based on both macro and micro-economic perspectives.

This paper will examine the evidence in Speculative Efficiency Hypothesis (SEH) which is the major theory of this paper. The SEH presumes the forward rate is an unbiased forecast of the expected future spot rate. In other words, the forward exchange rate is a good predictor of the future value of the spot exchange rate. This paper will use the forward rate and spot rate data of US dollar and UK sterling and select a long period of 12th of March 2001 to 31st of May 2006 and a short period from 1th January 2010 to 31st December 2010 to do the hypothesis tests in different model and get the evidence for SEH cannot stand in modern exchange market. In addition, with more deep study, more complex econometrics model should be use in testing the SEH, such as a non-linear model when dealing with the structural break.

Kay words: Foreign exchange market; Spot rate; Forward rate; Speculative Efficiency Hypothesis; Structural break

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 04 Aug 2014 12:42
Last Modified: 22 Oct 2016 12:45
URI: http://eprints.nottingham.ac.uk/id/eprint/25538

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