Testing the forward volatility unbiasedness hypothesis in exchange rates under long-range dependence

Abstract This paper analyses the unbiasedness hypothesis between spot and forward volatility, using both actual continuous path of realised focusing on long-memory properties. For this purpose, we use daily volatility with jumps for USD/EUR exchange rate negotiated in FX market employ fractional integration cointegration techniques. Both series have long-range dependence, so does error correction term their long-run relationship. Hence, deviations from equilibrium are highly persistent, effects shocks affecting relationship dissipate very slowly. While long-term contracts, there is some empirical evidence that not hold – and, thus, implied a systematically downward-biased predictor future short-term mixed.