“Testing the Stationarity of the Euro Forward Premium: Evidence from Quantile Unit Root Test”

Tsung-Wu Ho, Shih Hsin University

Wan-Shin (Cindy) Mo, Chung Yuan Christian University 

This study investigates the stationarity properties of six Euro forward premiums/discounts of various terms. The wide range of the AR(1)  coefficient  of forward premiums/discounts across quantiles implies a mean-reversion process underlying the data is less robust, hence a robust unit root test of Koenker and Xiao (2004) is employed. Moreover, the quantile regression results point that, in most currencies, the forward premium/discount persistence substantially decreases at tail quantiles across all maturities. We provide evidence favoring stationarity for all series, except the British pound and U.S. dollar, of most horizons at the 10% significance level. Our evidence confirms the usefulness of the quantile unit root test.