Empirical Research On The Forward Rate Unbiasedness Hypothesis Of RMB

Since 2005,China has started to implement a "managed floating exchange rate system based on market supply and demand,reference to a basket of currencies".The degree of exchange rate liberalization has been significantly enhanced.The fluctuation range of exchange rate is significantly enlarged,and foreign exchange risk tends to increase.Therefore,it is of great practical significance to correctly judge the future trend of exchange rate.In an age of globalized finance,Foreign exchange market efficiency is particularly relevant as agents engage in arbitrage opportunities across international markets.Using the known information to predict the future exchange rate has great relation with people's lives and producing.One of the most important issues in international finance refers to the failure of forward exchange rates to forecast the future evolution of spot exchange rates.This is widely known as the unbiasedness puzzle:the estimated slope coefficients in the regression of the change in the logarithm of the spot rate on the forward premium significantly departs from one.More surprisingly,even negative estimates are reported.Such discrepancy from the underlying value in the uncovered interest rate parity implies not only that the forward rate is a biased predictor of the future spot rate,but also that forward rate predicts with the wrong sign.The term structures of exchange rates in the domestic forward markets are constructed and then applied to predict future spot exchange rates based on a vector equilibrium correction model.One of the most important issues in international finance refers to the failure of forward exchange rates to forecast the future evolution of spot exchange rates.This paper taking the relationship between the spot and forward exchange rate as the main object of study has practical value.At first,this paper studies the covered interest parity theory in the application of the forward rate pricing model,secondly discusses whether the forward rate in the foreign exchange market can be the unbiased estimates of the exchange rate in the future.Based on the unit root test,the price of the spot and forward exchange rate has a first order differential stability.That is to say,they are I(1)in nature.Then we study cointegration relation of USD/CNY between spot and forward exchange rate for the empirical analysis in the foreign exchange market.The study found that there is a long-term stable relationship of them and that the forward exchange rate is an unbiased predictor of the future spot exchange rate.At the same time we study their relationship with changes in short time by VECM.At last,the spot exchange rate is the Granger cause of the forward rate,this will help investors to make decisions and avoid risks effectively.The result has several important policy implications,especially for exchange rate determination.But,As the maturity increases,the forward rate is no longer the granger cause of the spot rate.The effectiveness of the foreign exchange market needs to be further improved.