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Persistence in the Forward Discount

Aidil Rizal Shahrin

Abstract



We investigated the degree of persistence in the forward discount for G7 countries’ currencies using the confidence interval approach and test for multiple changes in persistence. We found a large degree of uncertainty in persistence of the series and evidence of a quite persistent process based on the confidence interval approach. The change in persistence analysis revealed that forward discount undergoes multiple changes in persistence. They are stationary process in some periods and nonstationary in others for all currencies. Overall, our findings highlight forward discount undergoes changes in persistence which might explain the mix findings of stationarity found in previous studies. Furthermore, previous
findings based on augmented Dickey-Fuller (ADF) to test for stationarity are doubtful, due to inconsistency of the test when the series undergoes change in persistence.

Keywords


forward discount, persistence, grid bootstrap, sub-sampling, change in persistence.

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