This paper investigates why the forward premium predicts the future depreciation with the "wrong" sign and why the unobserved deviation from rational uncovered interest parity is negatively correlated with and is more volatile than the rationally expected depreciation. We examine the ability of...

The forward premium puzzle (FPP) is the negative correlation between the forward premium and the realized exchange rate return at maturities of a month and beyond. Some recent evidence shows that at maturities of multiple years and at the highest intra day frequency the correlation is positive...

We investigate the potential presence of time variation in the coefficients of the ''Fama regression'' for Uncovered InterestRate Parity. We implement coefficient constancy tests, rolling regression techniques, and stochastic coefficient modelsbased on state space modelling. Among six major US...

Exchange rates typically exhibit time-varying patterns in both means andvariances. The histograms of such series indicate heavy tails. In thispaper we construct models which enable a decision-maker to analyze theimplications of such time series patterns for currency risk management.Our approach...

This study is motivated by two major considerations. First, the Fletcher andTaylor (1996) approach has yet to be applied to short-date markets to assess thediminishing role of transaction costs in explaining the devjatjons of observed forwardforeign exchange prices from interest parity forward...