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Essays in international finance

Hadla, Masar (2015) Essays in international finance. PhD thesis, University of Essex.

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Abstract

This thesis contributes to the extant research on international finance by presenting a collection of three separate essays. The first essay tests the validity of long-run Purchasing Power Parity (PPP) in two panels of real exchange rates for 13 OECD countries (1989:07-2012:11, 1989:07-2006:12). Three panel unit root tests are applied, one that assumes cross-sectional independence, one that accounts for cross-sectional dependence using a single factor approach, and one that controls for cross-sectional dependence through a multi-factor approach. The main difference in the results is attributed to ignoring or allowing for cross-sectional dependence. The second essay also examines long-run PPP, but uses a panel cointegration test which allows for (i) heterogeneous and multiple structural breaks and (ii) crosssectional dependence. Based on a panel of 53 economies (1992:01-2014:05 ) no evidence of PPP can be found using two types of models that can be equipped/illequipped to handle the potential presence of structural breaks in the data. The third essay employs a factor approach to analyse exchange rate prediction at multiple horizons, from 1 month to two years for a panel of 10 OECD economies spanning the period 1999:01-2013:04. Two new models are proposed, that are based on the separate use of forward rates and interest rate differentials to be added in conjunction with the extracted factors. Factor-based exchange rate models were found to beat the random walk model for long horizons over the latter parts of our forecasting sample.

Item Type: Thesis (PhD)
Uncontrolled Keywords: Purchasing Power Parity. Forecasting Exchange Rates. Panel Unit Root. Panel Cointegration. Exchange Rates. International Finance.
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Faculty of Social Sciences > Essex Business School
Depositing User: Masar Hadla
Date Deposited: 21 Dec 2015 16:11
Last Modified: 21 Dec 2015 16:11
URI: http://repository.essex.ac.uk/id/eprint/15692

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