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The Information in Long-Maturity Forward Rates : Implications for Exchange Rates and the Forward Premium Anomaly
Boudoukh, Jacob - 2005
The forward premium anomaly is one of the most robust puzzles in financial economics. We recast the underlying parity relation in terms of cross-country differences between forward interest rates rather than spot interest rates with dramatic results. These forward interest rate differentials...
Persistent link: https://www.econbiz.de/10012784029
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Effects of Japanese Macroeconomic Announcements on the Dollar/Yen Exchange Rate : High-Resolution Picture
Hashi, Yuko - 2010
components have return impacts also have impacts on deals and volatility. The announcement itself, in addition to the magnitude … of surprise, is found to increase the deals and price volatility in the immediately after the announcement. In addition …, some other items have no return impacts but deals and volatility impacts. These facts are consistent with a view that …
Persistent link: https://www.econbiz.de/10013152611
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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 … estimate of the effect of the volatility on the spreads. Although the spread-volatility relation implied by the option model of …
Persistent link: https://www.econbiz.de/10012788531
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Are Option-Implied Forecasts of Exchange Rate Volatility Excessively Variable?
Wei, Shang-Jin; Frankel, Jeffrey A. - 2021
Market participants' forecasts of future exchange rate volatility can be recovered from option contracts on foreign … currencies. Such implicit volatility forecasts for four currencies are used to test rational expectations jointly with the … version of market rationality: the market can correctly forecast the direction of the change in exchange rate volatility. This …
Persistent link: https://www.econbiz.de/10013242912
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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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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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The Covariation of Risk Premiums and Expected Future Spot Exchange Rates
Hodrick, Robert J. - 2010
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/10012762951
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The Term Structure of Forward Exchange Premia and the Forecastibility of Spot Exchange Rates : Correcting the Errors
Clarida, Richard - 2010
We present theory and evidence that challenges the view that forward premia contain little information regarding subsequent spot rate movements. Using weekly dollar-mark and dollar sterling data, we find that spot and forward exchange rates together are well represented by a vector error...
Persistent link: https://www.econbiz.de/10012763403
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Heterogeneous Expectations and Tests of Efficiency in the Yen/Dollar Forward Foreign Exchange Rate Market
Elliott, Graham - 2010
This paper examines the efficiency of the forward yen/dollar market using micro survey data. We first argue that the conventional tests of efficiency (unbiasedness) of the forward rate or of the survey forecasts do not correspond directly to the zero-profit condition. Instead, we use the survey...
Persistent link: https://www.econbiz.de/10012763699