On the Biasedness of Forward Foreign Exchange Rates: Irrationality Or Risk Premia? Working Paper PDF Download
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Author: S. Cavaglia
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: S. Cavaglia
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Stefano M. F. G. Cavaglia
Publisher:
ISBN:
Category : Finance
Languages : en
Pages : 30
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Author: Stefano Cavaglia
Publisher:
ISBN:
Category :
Languages : en
Pages :
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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: Geert Bekaert
Publisher:
ISBN:
Category : Foreign exchange
Languages : en
Pages : 56
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Author: Richard Meese
Publisher:
ISBN:
Category : Econometrics
Languages : en
Pages : 68
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Author: Selahattin Dibooglu
Publisher:
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Category :
Languages : en
Pages :
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The paper reconsiders the unbiasedness hypothesis in the foreign exchange market. Within the context of a conventional model of exchange rates, risk premium shocks are constrained to have no permanent effects on the spot rate. Using monthly data from the post floating period, the paper estimates risk premia for the Dollar rates of the Yen, Mark, and Pound. Risk premium innovations seem to explain a modest proportion of short term variability of exchange rate changes and excess returns. However, risk premia may explain serial correlations in excess returns.
Author: Charles Engel
Publisher:
ISBN:
Category : Foreign exchange futures
Languages : en
Pages : 128
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Forward exchange rate unbiasedness is rejected in tests from the current floating exchange rate era. This paper surveys advances in this area since the publication of Hodrick's (1987) survey. It documents that the change in the future exchange rate is generally negatively related to the forward discount. Properties of the expected forward forecast error are reviewed. Issues such as the relation of uncovered interest parity to real interest parity, and the implications of uncovered interest parity for cointegration of various quantities are discussed. The modeling and testing for risk premiums is surveyed. Included in this area are tests of the consumption CAPM, tests of the latent variable model, and portfolio-balance models of risk premiums. General equilibrium models of the risk premium are examined and their empirical implications explored. The survey does not cover the important areas of learning and peso problems, tests of rational expectations based on survey data, or the models of irrational expectations and speculative bubbles.
Author: Glen A. Larsen
Publisher:
ISBN:
Category : Foreign exchange futures
Languages : en
Pages : 34
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Author: Ronald MacDonald
Publisher: Routledge
ISBN: 1134801254
Category : Business & Economics
Languages : en
Pages : 465
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First published in 2007. Exchange Rate Economics: Theories and Evidence is the second edition of Floating Exchange Rates: Theories and Evidence, and builds on the successful content and structure of the previous edition, but has been comprehensively updated and expanded to include additional literature on the determination of both fixed and floating exchange rates. Core topics covered include: • the purchasing power parity hypothesis and the PPP puzzle; • the monetary and portfolio-balance approaches to exchange rates; • the new open economy macroeconomics approach to exchange rates; and • the determination of exchange rates in target zone models and speculative attack models. Exchange Rate Economics: Theories and Evidence also includes extensive discussion of recent econometric work on exchange rates with a particular focus on equilibrium exchange rates and measuring exchange rate misalignment, as well as discussion on the non-fundamentals-based approaches to exchange rate behaviour, such as the market microstructure approach. The book will appeal to academics and postgraduate students with an interest in all aspects of international finance and will also be of interest to practitioners concerned with issues relating to equilibrium exchange rates and the forecastability of currencies in terms of macroeconomic fundamentals.
Author:
Publisher:
ISBN:
Category : Finance
Languages : en
Pages : 440
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