Though there is widespread agreement that the logarithmic spot and forward rates are both integrated of order one (I(1)) variables, so that their corresponding returns are I(0) stationary, it has been recently claimed that they may be long memory. In this article, we examine this hypothesis by means of fractional integration techniques. The results based on parametric and semiparametric tests show that though fractional degrees of integration are plausible alternatives, the confidence intervals include the unit root case in both series. In addition, the hypothesis of unbiasedness of the forward rate as a forecaster for the future spot rate cannot be rejected for the Australian daily exchange rate market.
spot and forward exchange rates; fractional integration; long memory
