Title :
Empirical Evidence of the Spot and the Forward Exchange Rates in China Based on a GARCH-in-Mean Approach
Author :
Sun, Dong ; Zhou, Yun
Author_Institution :
Bus. & Adm. Sch., North China Electr. Power Univ., Beijing
Abstract :
In this article we examine the daily structure of the spot and forward exchange rates in China by means of a GARCH-M technique. Using the daily data from China foreign exchange market and the approaches of stationary test, GARCH and GARCH-In-Mean, the results show that the spot rate has a unit root while the forward exchange rate is 1(d) with d ,1, implying long memory and a time-varying premium exists in China´s foreign exchange market. Therefore, this study provides a further evidence that the time-varying risk premium is a strong candidate in explaining the predictable excess return puzzle.
Keywords :
autoregressive processes; exchange rates; China foreign exchange market; GARCH-in-mean approach; spot and forward exchange rates; time-varying premium; time-varying risk premium; Agriculture; Economic forecasting; Energy management; Equations; Exchange rates; Investments; Power generation economics; Regression analysis; Sun; Testing;
Conference_Titel :
Intelligent Systems and Applications, 2009. ISA 2009. International Workshop on
Conference_Location :
Wuhan
Print_ISBN :
978-1-4244-3893-8
Electronic_ISBN :
978-1-4244-3894-5
DOI :
10.1109/IWISA.2009.5072847