Sarmidi, Tamat and Mohd Salleh, Norlida Hanim
(2011)
Time Horizon And Uncovered Interest Parity In
Emerging Economies.
Asian Academy of Management Journal (AAMJ), 16 (2).
pp. 1-24.
ISSN 1394-2603
Abstract
The aim of this study is to re-examine the well-known empirical puzzle of uncovered
interest parity (UIP) for emerging market economies with different prediction time
horizons. The empirical results obtained using dynamic panel and time series techniques
for monthly data from January 1995 to December 2009 eventually show that the panel
data estimates are more powerful than those obtained by applying individual time series
estimations and the significant contribution of the exchange rate prediction horizons in
determining the status of UIP. This finding reveals that at the longer time horizon, the
model has better econometric specification and thus more predictive power for exchange
rate movements compared to the shorter time period. The findings can also be a
signalling of well-integrated currency markets and a reliable guide to international
investors as well as for the orderly conduct of monetary authorities.
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