An analysis of forward exchange rate biasedness across developed and developing country currencies: Do observed patterns persist out of sample?

The existence and severity of the forward premium puzzle during tranquil and turbulent periods: Developed versus developing country currencies

“…The difference in the FPB between the developed currency set and developing currency set over the turbulent period is consistent with the findings of Loring and Lucey (2013) who conclude that the FPB is less pronounced for developed currencies compared to developing currencies over the period May 2004-September 2011. This outcome can reflect our results in the previous section where β estimates for some developing country currencies (HUF, INR, TRY and ZAR) remained negative or became more negative over turbulent period.…”

“…They argue that because emerging country currencies are riskier and their trend of movement is easily identifiable compared to developed market currencies, these results are in favour of systematic expectational errorsbased explanations of the bias and against time variant risk-based explanations. In contrast, Loring and Lucey (2013) extend the sample period used by Frankel and Poonawala (2010) and examine the FPB from 2004 to 2011 for 13 developed and 14 emerging country currencies against the US dollar. They dismiss the results that the bias is more pronounced for developed country currencies.…”

“…For example, the FPB is found to exist over some time periods but not in other time periods (e.g., Bansal and Dahlquist, 2000;Flood and Rose, 2002;Zhou and Kutan, 2005;Lee, 2011Lee, , 2013Lothian and Wu, 2011;Grossmann et al, 2014;Czech, 2020;Miah and Altiti, 2020). In addition, its severity is found to vary amongst different currencies (e.g., Bansal and Dahlquist, 2000;Frankel and Poonawala, 2010;Loring and Lucey, 2013;Grossmann et al, 2014;Miah and Altiti, 2020). This paper is motivated by this strand of literature.…”

Does the Euro affect the dynamic relation between stock market liquidity and the business cycle?

“…quarter of 1990 and ending at the first quarter of 2001.31 This period is subdivided to obtain in-sample and out-of-sample periods in line with the work ofLoring & Lucey (2013). The first ends at the first quarter of 1999 (the Euro introduction date).…”