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The Covariation of Risk Premiums and Expected Future Spot Exchange Rates

Hodrick, Robert J. - 1985

Fama(1984) analyzed the variability and the covariation of risk premiums and expected rates of depreciation. We employ three statistical techniques that do not suffer from a potential bias in Fama's analysis, but we nevertheless confirm his findings. In contrast to his interpretation the results...

Persistent link: https://www.econbiz.de/10012477330

The Forward Premium is Still a Puzzle

Burnside, Craig - 2007

Lustig and Verdelhan (2007) argue that the excess returns to borrowing US dollars and lending in foreign currency "compensate US investors for taking on more US consumption growth risk," yet the stochastic discount factor corresponding to their benchmark model is approximately uncorrelated with...

Persistent link: https://www.econbiz.de/10012465525

Risk and Exchange Rates

Obstfeld, Maurice - 1998

This paper develops an explicitly stochastic new open economy macroeconomics' model, which can potentially be used to explore the qualitative and quantitative welfare differences between alternative exchange rate regimes. A crucial feature is that we do not simplify by assuming certainty...

Persistent link: https://www.econbiz.de/10012472119

Affine Models of Currency Pricing

Backus, David - 1996

-varying risk premium, but theory has been largely unsuccessful in producing a risk premium with the requisite properties. We … characterize the risk premium in a general arbitrage-free setting and describe the features a theory must have to account for the …

Persistent link: https://www.econbiz.de/10012473222

Exchange Rate Expectations and the Risk Premium : Tests For a Cross- Section of 17 Currencies

Frankel, Jeffrey - 1991

Survey data on a broad cross section of 17 currencies are used to determine whether the forward discount moves primarily in response to changes in expectations of depreciation, or in the risk premium. We find that changes in expected depreciation are quantitatively significant. However we also...

Persistent link: https://www.econbiz.de/10012475190

Forward and Spot Exchange Rates in a Multi-currency World

Hassan, Tarek A. - 2014

Separate literatures study violations of uncovered interest parity using regression-based and portfolio-based methods. We propose a decomposition of these violations into a cross-currency, a between-time-and-currency, and a cross-time component that allows us to analytically relate...

Persistent link: https://www.econbiz.de/10012458373

The Forward Premium Puzzle in a Two-Country World

Martin, Ian - 2011

I explore the behavior of asset prices and the exchange rate in a two-country world. When the large country has bad news, the relative price of the small country's output declines. As a result, the small country's bonds are risky, and uncovered interest parity fails, with positive excess returns...

Persistent link: https://www.econbiz.de/10012461094

The Information in Long-Maturity Forward Rates : Implications for Exchange Rates and the Forward Premium Anomaly

Boudoukh, Jacob - 2005

consistent with economic theory. Forward interest rates also forecast future spot interest rates and future inflation. Thus, we …

Persistent link: https://www.econbiz.de/10012466831

Tests of Rational Expectations and No Risk Premium in Forward Exchange Markats

Hsieh, David A. - 1982

This paper tests the hypothesis that traders have rational expeatations and charge no risk premium in the forward exchange market. It uses a statistical procedure which is consistent under a large class of heteroscedasticity, and a set of data which takes into account the institutional features...

Persistent link: https://www.econbiz.de/10012478268

The Term Structure of the Forward Premium

Hakkio, Craig S. - 1980

. The paper proposes an equilibrium theory of the term structure of the forward premium. By combining the theory of the term … expression for the expected one month forward premium. The theory will then impose highly non-linear cross equation restrictions … indicate that the data are consistent with the theory for Germany and inconsistent with the theory for Canada …

Persistent link: https://www.econbiz.de/10012478719

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