We study the properties of foreign exchange risk premia that can explain the forward bias puzzle - the tendency of high-interest rate currencies to appreciate rather than depreciate. These risk premia arise endogenously from imposing the no-arbitrage condition on the relation between the term...

This study sheds new light on the question of whether or not sentiment surveys, and the expectations derived from them, are relevant to forecasting economic growth and stock returns, and whether they contain information that is orthogonal to macroeconomic and financial data. I examine 16...

In a long-run risk model with stochastic volatility and frictionless markets, I express expected forex returns as a function of consumption growth variances and stock variance risk premiums (VRPs)—the difference between the risk-neutral and statistical expectations of market return variation....

This text presents a study of various models based on jump processes in the context of foreign exchange (FX) rates modeling. Quality of FX rate log-returns fit is assessed for models such as Merton and Kou jump-diffusions, normal inverse Gaussian, variance gamma, and Meixner. The study is...

The forecast performance of the empirical ESTAR model of Taylor, Peel and Sarno (2001) is examined for 4 bilateral real exchange rate series over an out-of-sample evaluation period of nearly 12 years. Point as well as density forecasts are constructed, considering forecast horizons of 1 to 22...

The forecast performance of the empirical ESTAR model of Taylor et al. (2001) is examined for 4 bilateral real exchange rate series over an out-of-sample evaluation period of nearly 12 years. Point as well as density forecasts are evaluated relative to a simple AR(1) specification, considering...

We show that long horizon forecasts from the nonlinear models that are considered in the study by Rapach andWohar (2006) cannot generate any forecast gains over a simple AR(1) specification. This is contrary to the findings reported in Rapach and Wohar (2006). Moreover, we illustrate graphically...

In this paper we discuss the estimation and methodology of the real equilibrium exchange rate partial equilibrium models and analyze to what extent the resulting estimates are applicable for setting the central parity prior to ERM II entry in the new EU member states. Given the uncertainty...

Using monthly frequency data from 1981 to 2005, we test for the potential mean reversion of Japan-US real exchange rates using newly improved unit root tests allowing for endogenous (unknown) break(s) in the linear as well as non-linear manner. Both countries have contributed vital proportion in...

This paper considers the speed of adjustment to long-run equilibria, in the context of cointegrated Vector Autoregressive Processes (VAR). We discuss the definition of multivariate p-lives for any indicator of predictive ability, concentrating on cumulated interim multipliers which converge to...