Empirical evidence of the spot and the forward exchange rates in Canada

In this article we examine the daily structure of the spot and forward exchange rates in Canada by means of using fractionally integrated techniques. Using a version of the tests of Robinson (1994) for testing I(d) statistical models, the results show that the spot rate has a unit root while the forward exchange rate is I(d) with d<1, implying long memory but mean reverting behaviour. This may explain the empirical anomaly observed when using the Fama (1984) regression based on returns