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Covered Interest Arbitrage : Then vs. Now
Juhl, Ted; Miles, William; Weidenmier, Marc - 2021
We introduce a new weekly database of spot and forward US-UK exchange rates as well as interest rates to examine the integration of forward exchange markets during the classical gold standard period (1880-1914). Using threshold autoregressions (TAR), we estimate the transactions cost band of...
Persistent link: https://www.econbiz.de/10013223800
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FX Counterparty Risk and Trading Activity in Currency Forward and Futures Markets
Levich, Richard M. - 2012
The Global Financial Crisis initiated a period of market turbulence and increased counterparty risk for financial institutions. Even though the Dodd-Frank Act is likely to exempt interbank foreign exchange trading from a central counterparty mandate, market participants have the option to trade...
Persistent link: https://www.econbiz.de/10013103054
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Currency Hedging and Goods Trade
Wei, Shang-Jin - 2021
volatility on international trade. A common explanation is the availability of hedging instruments. This paper examines the … empirical validity of this explanation using data on over 1,000 country pairs. Which countries have currency hedging instruments …. There are two main findings. First, there is no evidence in the data to support the validity of the hedging hypothesis …
Persistent link: https://www.econbiz.de/10013224933
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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/10013118842
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Tests of Rational Expectations and No Risk Premium in Forward Exchange Markats
Hsieh, David A. - 2009
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/10013159483
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The Forecasting Ability of Correlations Implied in Foreign Exchange Options
Campa, José Manuel - 2008
This paper evaluates the forecasting accuracy of correlation derived from implied volatilities in dollar-mark, dollar-yen, and mark-yen options from January 1989 to May 1995. As a forecast of realized correlation between the dollar-mark and dollar-yen, implied correlation is compared against...
Persistent link: https://www.econbiz.de/10012774954
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The Forward Premium is Still a Puzzle
Burnside, A. Craig - 2007
Lustig and Verdelhan (2007) argue that the excess returns to borrowing US dollars and lending in foreign currency quot;compensate US investors for taking on more US consumption growth risk,quot; yet the stochastic discount factor corresponding to their benchmark model is approximately...
Persistent link: https://www.econbiz.de/10012776875
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Rational Inattention : A Solution to the Forward Discount Puzzle
Bacchetta, Philippe - 2005
The uncovered interest rate parity equation is the cornerstone of most models in international macro. However, this equation does not hold empirically since the forward discount, or interest rate differential, is negatively related to the subsequent change in the exchange rate. This forward...
Persistent link: https://www.econbiz.de/10012784266
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Information Aggregation, Security Design and Currency Swaps
Chowdhry, Bhagwan - 2004
A model of security design based on the principle of information aggregation and alignment is used to show that (i) firms needing to finance their operations should issue different securities to different groups of investors in order to aggregate their disparate information and (ii) each...
Persistent link: https://www.econbiz.de/10012786186
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Anticipations of Foreign Exchange Volatility and Bid-Ask Spreads
Wei, Shang-Jin - 2000
The paper studies the effect of the market's perceived exchange rate volatility on bid-ask spreads. The anticipated volatility is extracted from currency options data. An increase in the perceived volatility is found to widen bid-ask spreads. The direction of the effect is consistent with an...
Persistent link: https://www.econbiz.de/10012788531