By doing the similar process checks on all the other currencies, all the other series were found to be

non-stationary. The unit root was first removed and then the regression was later performed using the
method described. The Hypothesis was then tested over the constant values.

Regression on USD spot over one month forward

Dependent Variable: USD_SPOT_DIFF(1)

Method: Least Squares
Date: 08/10/10 Time: 00:27
Sample (adjusted): 2 71
Included observations: 70 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

C 0.006723 0.086190 0.078000 0.9381

USD_1MF_DIFF 0.383524 0.112234 3.417181 0.0011

R-squared 0.146556     Mean dependent var 0.013571

Adjusted R-squared 0.134005     S.D. dependent var 0.774692
S.E. of regression 0.720920     Akaike info criterion 2.211577
Sum squared resid 35.34131     Schwarz criterion 2.275820
Log likelihood -75.40520     F-statistic 11.67713
Durbin-Watson stat 1.824922     Prob(F-statistic) 0.001072

A=0 b =1

Wald Test:
Equation: Untitled

Test Statistic Value   df     Probability

F-statistic 15.08652 (2, 68)   0.0000

Chi-square 30.17304 2   0.0000

Null Hypothesis Summary:

Normalized Restriction (= 0) Value   Std. Err.

C(1) 0.006723 0.086190

-1 + C(2) -0.616476 0.112234

Restrictions are linear in coefficients.

Regression on USD spot over three month forward

Dependent Variable: USD_SPOT_DIFF(3)

Method: Least Squares
Date: 08/09/10 Time: 23:42
Sample (adjusted): 2 69
Included observations: 68 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

C 0.030305 0.096321 0.314627 0.7540

USD_3MF_DIFF 0.138773 0.163859 0.846903 0.4001

R-squared 0.010751     Mean dependent var 0.019265

Adjusted R-squared -0.004238     S.D. dependent var 0.785315
S.E. of regression 0.786978     Akaike info criterion 2.387737
Sum squared resid 40.87605     Schwarz criterion 2.453017
Log likelihood -79.18306     F-statistic 0.717244
Durbin-Watson stat 1.217535     Prob(F-statistic) 0.400110

A= 0 , B=1

Wald Test:
Equation: Untitled

Test Statistic Value   df     Probability

F-statistic 14.34844 (2, 66)   0.0000

Chi-square 28.69687 2   0.0000

Null Hypothesis Summary:

Normalized Restriction (= 0) Value   Std. Err.

C(1) 0.030305 0.096321

-1 + C(2) -0.861227 0.163859

Restrictions are linear in coefficients.

Regression on USD spot over six month forward

Dependent Variable: USD_SPOT_DIFF(6)

Method: Least Squares
Date: 08/09/10 Time: 23:46
Sample (adjusted): 2 66
Included observations: 65 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

C 0.049379 0.099699 0.495276 0.6221

USD_6MF_DIFF 0.145305 0.146962 0.988724 0.3266

R-squared 0.015280     Mean dependent var 0.038000

Adjusted R-squared -0.000350     S.D. dependent var 0.798286
S.E. of regression 0.798426     Akaike info criterion 2.417936
Sum squared resid 40.16145     Schwarz criterion 2.484840
Log likelihood -76.58292     F-statistic 0.977576
Durbin-Watson stat 1.228692     Prob(F-statistic) 0.326580

A=0 b =1

Wald Test:
Equation: Untitled

Test Statistic Value   df     Probability

F-statistic 17.60105 (2, 63)   0.0000

Chi-square 35.20209 2   0.0000

Null Hypothesis Summary:

Normalized Restriction (= 0) Value   Std. Err.

C(1) 0.049379 0.099699

-1 + C(2) -0.854695 0.146962

Restrictions are linear in coefficients.

Regression on Ukp spot over six month forward

Dependent Variable: UKP_SPOT_DIFF(1)

Method: Least Squares
Date: 08/09/10 Time: 23:49
Sample (adjusted): 2 71
Included observations: 70 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

C -0.062133 0.257840 -0.240975 0.8103

UKP_1MF_DIFF 0.079028 0.121057 0.652814 0.5161

R-squared 0.006228     Mean dependent var -0.064571

Adjusted R-squared -0.008386     S.D. dependent var 2.148027
S.E. of regression 2.157015     Akaike info criterion 4.403483
Sum squared resid 316.3845     Schwarz criterion 4.467726
Log likelihood -152.1219     F-statistic 0.426166
Durbin-Watson stat 1.924025     Prob(F-statistic) 0.516077

a=0 , b=1

Wald Test:
Equation: Untitled

Test Statistic Value   df     Probability

F-statistic 28.94759 (2, 68)   0.0000

Chi-square 57.89518 2   0.0000

Null Hypothesis Summary:

Normalized Restriction (= 0) Value   Std. Err.

C(1) -0.062133 0.257840

-1 + C(2) -0.920972 0.121057

Restrictions are linear in coefficients.

Regression on Ukp spot over three month forward

Dependent Variable: UKP_SPOT_DIFF(3)

Method: Least Squares
Date: 08/10/10 Time: 00:02
Sample (adjusted): 2 69
Included observations: 68 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

UKP_3MF_DIFF -0.056862 0.137134 -0.414642 0.6797

C -0.030719 0.264813 -0.116004 0.9080

R-squared 0.002598     Mean dependent var -0.031765

Adjusted R-squared -0.012514     S.D. dependent var 2.170071
S.E. of regression 2.183607     Akaike info criterion 4.428804
Sum squared resid 314.6972     Schwarz criterion 4.494083
Log likelihood -148.5793     F-statistic 0.171928
Durbin-Watson stat 1.783252     Prob(F-statistic) 0.679748

A=0 b =1

Wald Test:
Equation: Untitled

Test Statistic Value   df     Probability

F-statistic 7.676830 (2, 66)   0.0010

Chi-square 15.35366 2   0.0005

Null Hypothesis Summary:

Normalized Restriction (= 0) Value   Std. Err.

C(1) -0.056862 0.137134

-1 + C(2) -1.030719 0.264813

Restrictions are linear in coefficients.

Regression on Ukp spot over three month forward

Regression on Ukp spot over one month forward

Dependent Variable: UKP_SPOT_DIFF(1)

Method: Least Squares
Date: 08/10/10 Time: 00:04
Sample (adjusted): 2 71
Included observations: 70 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

C -0.062133 0.257840 -0.240975 0.8103

UKP_1MF_DIFF 0.079028 0.121057 0.652814 0.5161

R-squared 0.006228     Mean dependent var -0.064571

Adjusted R-squared -0.008386     S.D. dependent var 2.148027
S.E. of regression 2.157015     Akaike info criterion 4.403483
Sum squared resid 316.3845     Schwarz criterion 4.467726
Log likelihood -152.1219     F-statistic 0.426166
Durbin-Watson stat 1.924025     Prob(F-statistic) 0.516077

A=0, B=1

Wald Test:
Equation: Untitled

Test Statistic Value   df     Probability

F-statistic 28.94759 (2, 68)   0.0000

Chi-square 57.89518 2   0.0000

Null Hypothesis Summary:

Normalized Restriction (= 0) Value   Std. Err.

C(1) -0.062133 0.257840

-1 + C(2) -0.920972 0.121057

Restrictions are linear in coefficients.

Regression on JPY spot over one month forward

Dependent Variable: JPY_SPOT_DIFF(1)

Method: Least Squares
Date: 08/10/10 Time: 00:08
Sample (adjusted): 2 69
Included observations: 68 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

C 0.124535 0.148598 0.838067 0.4050

JPY_1MF_DIFF 0.161166 0.137999 1.167878 0.2471

R-squared 0.020247     Mean dependent var 0.130294

Adjusted R-squared 0.005403     S.D. dependent var 1.228014
S.E. of regression 1.224692     Akaike info criterion 3.272227
Sum squared resid 98.99146     Schwarz criterion 3.337506
Log likelihood -109.2557     F-statistic 1.363939
Durbin-Watson stat 1.501325     Prob(F-statistic) 0.247058

A=0, B=1

Wald Test:
Equation: Untitled

Test Statistic Value   df     Probability

F-statistic 18.67696 (2, 66)   0.0000

Chi-square 37.35391 2   0.0000

Null Hypothesis Summary:

Normalized Restriction (= 0) Value   Std. Err.

C(1) 0.124535 0.148598

-1 + C(2) -0.838834 0.137999

Restrictions are linear in coefficients.

Regression on JPY spot over three month forward

Dependent Variable: JPY_SPOT_DIFF(3)

Method: Least Squares
Date: 08/10/10 Time: 00:14
Sample (adjusted): 2 67
Included observations: 66 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

C 0.142149 0.154041 0.922797 0.3596

JPY_3MF_DIFF -0.049278 0.174873 -0.281792 0.7790

R-squared 0.001239     Mean dependent var 0.141970

Adjusted R-squared -0.014366     S.D. dependent var 1.242534
S.E. of regression 1.251427     Akaike info criterion 3.316281
Sum squared resid 100.2285     Schwarz criterion 3.382634
Log likelihood -107.4373     F-statistic 0.079407
Durbin-Watson stat 1.188762     Prob(F-statistic) 0.779012

a=0,b=1

Wald Test:
Equation: Untitled

Test Statistic Value   df     Probability

F-statistic 18.40454 (2, 64)   0.0000

Chi-square 36.80909 2   0.0000

Null Hypothesis Summary:

Normalized Restriction (= 0) Value   Std. Err.

C(1) 0.142149 0.154041

-1 + C(2) -1.049278 0.174873

Restrictions are linear in coefficients.

regression of jpy over 6 month contrat

Dependent Variable: JPY_SPOT_DIFF(6)
Method: Least Squares
Date: 08/10/10 Time: 00:11
Sample (adjusted): 2 64
Included observations: 63 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

C 0.156794 0.160496 0.976934 0.3325

JPY_6MF_DIFF -0.023514 0.182565 -0.128796 0.8979

R-squared 0.000272     Mean dependent var 0.157302

Adjusted R-squared -0.016117     S.D. dependent var 1.263373
S.E. of regression 1.273513     Akaike info criterion 3.352667
Sum squared resid 98.93194     Schwarz criterion 3.420703
Log likelihood -103.6090     F-statistic 0.016588
Durbin-Watson stat 1.206485     Prob(F-statistic) 0.897943

a=0, b=1

Wald Test:
Equation: Untitled

Test Statistic Value   df     Probability

F-statistic 16.33685 (2, 61)   0.0000

Chi-square 32.67371 2   0.0000

Null Hypothesis Summary:

Normalized Restriction (= 0) Value   Std. Err.

C(1) 0.156794 0.160496

-1 + C(2) -1.023514 0.182565

Restrictions are linear in coefficients.

Regression of 1 month euro

Dependent Variable: EURO_SPOT_DIFF(1)
Method: Least Squares
Date: 08/10/10 Time: 00:16
Sample (adjusted): 2 71
Included observations: 70 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

C 0.181777 0.171644 1.059037 0.2933

EURO_1MF_DIFF 0.145403 0.118608 1.225917 0.2245

R-squared 0.021623     Mean dependent var 0.206143

Adjusted R-squared 0.007235     S.D. dependent var 1.431606
S.E. of regression 1.426418     Akaike info criterion 3.576365
Sum squared resid 138.3574     Schwarz criterion 3.640608
Log likelihood -123.1728     F-statistic 1.502872
Durbin-Watson stat 1.874166     Prob(F-statistic) 0.224459

A=0, B=1

Wald Test:
Equation: Untitled

Test Statistic Value   df     Probability

F-statistic 25.98340 (2, 68)   0.0000

Chi-square 51.96681 2   0.0000

Null Hypothesis Summary:

Normalized Restriction (= 0) Value   Std. Err.

C(1) 0.181777 0.171644

-1 + C(2) -0.854597 0.118608

Restrictions are linear in coefficients.

Regression of 3 month Euro :

Dependent Variable: EURO_SPOT_DIFF(3)
Method: Least Squares
Date: 08/10/10 Time: 00:19
Sample (adjusted): 2 69
Included observations: 68 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

C 0.236766 0.178582 1.325810 0.1895

EURO_3MF_DIFF -0.115021 0.130130 -0.883895 0.3800

R-squared 0.011699     Mean dependent var 0.212206

Adjusted R-squared -0.003275     S.D. dependent var 1.452317
S.E. of regression 1.454693     Akaike info criterion 3.616437
Sum squared resid 139.6647     Schwarz criterion 3.681717
Log likelihood -120.9589     F-statistic 0.781270
Durbin-Watson stat 1.605557     Prob(F-statistic) 0.379961

A=0 b =1

Wald Test:
Equation: Untitled

Test Statistic Value   df     Probability

F-statistic 36.70986 (2, 66)   0.0000

Chi-square 73.41972 2   0.0000

Null Hypothesis Summary:

Normalized Restriction (= 0) Value   Std. Err.

C(1) 0.236766 0.178582

-1 + C(2) -1.115021 0.130130

Restrictions are linear in coefficients.

Regression on 6 month Euro

Dependent Variable: EURO_SPOT_DIFF(6)
Method: Least Squares
Date: 08/10/10 Time: 00:21
Sample (adjusted): 2 66
Included observations: 65 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

C 0.225120 0.179186 1.256352 0.2136

EURO_6MF_DIFF -0.084827 0.133785 -0.634052 0.5283

R-squared 0.006341     Mean dependent var 0.204462

Adjusted R-squared -0.009432     S.D. dependent var 1.413905
S.E. of regression 1.420557     Akaike info criterion 3.570262
Sum squared resid 127.1329     Schwarz criterion 3.637166
Log likelihood -114.0335     F-statistic 0.402022
Durbin-Watson stat 1.641248     Prob(F-statistic) 0.528342

A=0 , B=1

Wald Test:
Equation: Untitled

Test Statistic Value   df     Probability

F-statistic 32.90049 (2, 63)   0.0000

Chi-square 65.80098 2   0.0000

Null Hypothesis Summary:

Normalized Restriction (= 0) Value   Std. Err.

C(1) 0.225120 0.179186

-1 + C(2) -1.084827 0.133785

Restrictions are linear in coefficients.

My comments :

The above table ( I will create a consolidated table of all Probabilities value for A=0, B=1 joint hypothesis
using the above results and coefficients ) all the equations perform reasonably in terms of explanatory
power. This can be seen in the not so high R-square for each estimating equation. If we directly estimate
without removing the unit root, R- square is very high but it might not give the correct results in the view
of series not being stationary However the lower probability values clearly shows that all null hypotheisi
in each of the cases that A=0, B=1 is easily rejected. the statistical rejection of this joint hypothesis
means either the market is inefficient < beyond this usual gas of how the forward rates are not unbiased
predictors >