On the Biasedness of Forward Foreign Exchange Rates PDF Download
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Author: Stefano Cavaglia
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
In this article we reconsider the Froot and Frankel (1989) results on the sources of forward discount bias. We question the economic validity of some estimation restrictions which they impose and, thus, are led to question some of their results. We employ a new exchange rate survey database that includes EMS currencies and use univariate and pooling estimation techniques that impose fewer restrictions than those of Froot and Frankel to test our hypotheses. We find that the bias in the forward discount is attributale to both the failure of rational expectations and the existence of time-varying risk premia.
Author: Stefano Cavaglia
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
In this article we reconsider the Froot and Frankel (1989) results on the sources of forward discount bias. We question the economic validity of some estimation restrictions which they impose and, thus, are led to question some of their results. We employ a new exchange rate survey database that includes EMS currencies and use univariate and pooling estimation techniques that impose fewer restrictions than those of Froot and Frankel to test our hypotheses. We find that the bias in the forward discount is attributale to both the failure of rational expectations and the existence of time-varying risk premia.
Author: S. Cavaglia
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Ross Levine
Publisher:
ISBN:
Category : Economic forecasting
Languages : en
Pages : 84
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Book Description
Author: Geert Bekaert
Publisher:
ISBN:
Category : Foreign exchange
Languages : en
Pages : 56
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Book Description
Author: Mr.Peter Isard
Publisher: International Monetary Fund
ISBN: 1451922043
Category : Business & Economics
Languages : en
Pages : 32
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Book Description
The paper models an adjustable peg exchange rate arrangement as a policy rule with an escape clause under which the timing and magnitudes of realignments are the outcomes of policy optimization decisions. Under the assumptions that market participants are rational, risk averse, and fully informed about the incentives of policymakers, the analysis focuses on the implications for relating realignment expectations to the state variables that enter the policy objective function, for modeling the bias in using forward exchange rates to predict future spot rates, and for characterizing the effectiveness of sterilized intervention.
Author: Richard K. Lyons
Publisher:
ISBN:
Category : Foreign exchange futures
Languages : en
Pages : 28
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Book Description
Intraday interest rates are zero. Consequently, a foreign exchange dealer can short a vulnerable currency in the morning, close this position in the afternoon, and never face an interest cost. This tactic might seem especially attractive in times of crisis, since it suggests an immunity to the central bank's interest rate defense. In equilibrium, however, buyers of the vulnerable currency must be compensated on average with an intraday capital gain as long as no devaluation occurs. That is, currencies under attack should typically appreciate intraday. Using data on intraday exchange rate changes within the EMS, we find this prediction is borne out.
Author: Stefano M. F. G. Cavaglia
Publisher:
ISBN:
Category : Finance
Languages : en
Pages : 30
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Book Description
Author: Lucio Sarno
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 48
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Book Description
We provide empirical evidence that deviations from uncovered interest rate parity (UIP) display significant nonlinearities, consistent with theories based on transaction costs or limits to speculation. This evidence suggests that the forward bias documented in the literature may be less indicative of major market inefficiencies than previously thought. Monte Carlo experiments allow us to reconcile these results with the large empirical literature on the forward bias puzzle since we show that, if the true process of UIP deviations were of the nonlinear form we consider, estimation of conventional spot-forward regressions would generate the anomalies documented in previous research.
Author: Cheol S. Eun
Publisher:
ISBN:
Category :
Languages : en
Pages : 62
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Book Description
Author: Kenneth Froot
Publisher: Legare Street Press
ISBN: 9781019569733
Category :
Languages : en
Pages : 0
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Book Description
In this groundbreaking study, Jeffrey A. Frankel and Kenneth Froot examine the phenomenon of forward discount bias in exchange rates, using survey data to shed light on the behavior of investors and market participants. Their findings have important implications for understanding the dynamics of currency markets. This work has been selected by scholars as being culturally important, and is part of the knowledge base of civilization as we know it. This work is in the "public domain in the United States of America, and possibly other nations. Within the United States, you may freely copy and distribute this work, as no entity (individual or corporate) has a copyright on the body of the work. Scholars believe, and we concur, that this work is important enough to be preserved, reproduced, and made generally available to the public. We appreciate your support of the preservation process, and thank you for being an important part of keeping this knowledge alive and relevant.
