THE LONG MEMORY OF THE FORWARD PREMIUM

The estimation of ARFIMA models by approximate maximum likelihood esti mation methods, reveals the forward premia for the currencies of Canad a, Germany and the UK vis-a-vis the US dollar, to be well described by a fractionally integrated process. These models imply that all the fo rward premia are mean reverting, although their autocorrelations are q uite persistent. This degree of persistence has led other studies to e rroneously conclude that the forward premia contains a unit root. (JEL C22, E31).