Burnside, Craig; Han, Bing; Hirshleifer, David; Wang, … - In: Review of Economic Studies 78 (2011) 2, pp. 523-558
We offer an explanation for the forward premium puzzle in foreign exchange markets based upon investor overconfidence. In the model, overconfident individuals overreact to their information about future inflation, which causes greater overshooting in the forward rate than in the spot rate. Thus,...
