Properties of foreign exchange risk premiums PDF Download
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Author: Lucio Sarno
Publisher:
ISBN:
Category :
Languages : en
Pages : 85
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Book Description
Author: Lucio Sarno
Publisher:
ISBN:
Category :
Languages : en
Pages : 85
Get Book Here
Book Description
Author: Lucio Sarno
Publisher:
ISBN:
Category :
Languages : en
Pages : 86
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Book Description
We study the properties of foreign exchange risk premiums that can explain the forward bias puzzle, defined as the tendency of high-interest rate currencies to appreciate rather than depreciate. These risk premiums arise endogenously from the no-arbitrage condition relating the term structure of interest rates and exchange rates. Estimating affine (multi-currency) term structure models reveals a noticeable tradeoff between matching depreciation rates and accuracy in pricing bonds. Risk premiums implied by our global affine model generate unbiased predictions for currency excess returns and are closely related to global risk aversion, the business cycle, and traditional exchange rate fundamentals.
Author: Mr.Lorenzo Giorgianni
Publisher: International Monetary Fund
ISBN: 1451845790
Category : Business & Economics
Languages : en
Pages : 40
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Book Description
This paper challenges the conventional view that foreign exchange risk premiums are small, not volatile, and unrelated to macroeconomic variables. For the Italian lira (1987-94), unconditional risk premiums—constructed using survey data to measure exchange rate expectations—are found to be sizable (relative to the dimension of the forward premium), highly volatile (relative to the variability of the forward bias), and predictable. Estimation of structural models of the risk premium suggests that anticipated fiscal contractions in Italy and lower uncertainty about the future path of fiscal policy are associated with a lower risk premium on lira-denominated assets.
Author: Fabio Canova
Publisher:
ISBN:
Category : Foreign exchange
Languages : en
Pages : 52
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Book Description
The purpose of this paper is to characterize the changes in risk premium in the 1980s. A five-variable vector autoregressive model (VAR) is constructed to calculate a risk premium series in the foreign exchange market. The risk premium series is volatile and time-varying. The hypothesis of no risk premium is strongly rejected for the entire sample and each of the two subsamples considered. Various tests using the constructed risk premium series suggest that a risk premium existed but it was neither constant nor stable over subsamples and that its volatility was considerably reduced after October 1982.
Author: Sheng-Yung Yang
Publisher:
ISBN:
Category : Financial futures
Languages : en
Pages : 428
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Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Mr.Tigran Poghosyan
Publisher: International Monetary Fund
ISBN: 1455209554
Category : Business & Economics
Languages : en
Pages : 26
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Book Description
This paper analyzes macroeconomic determinants of the foreign exchange risk premium in two Gulf Cooperation Council (GCC) countries that peg their currencies to the U.S. dollar: Saudi Arabia and the United Arab Emirates. The analysis is based on the stochastic discount factor methodology, which imposes a no arbitrage condition on the relationship between the foreign exchange risk premium and its macroeconomic determinants. Estimation results suggest that U.S. inflation and consumption growth are important factors driving the risk premium, which is in line with the standard C-CAPM model. In addition, growth in international oil prices influences the risk premium, reflecting the important role played by the hydrocarbon sector in GCC economies. The methodology employed in this paper can be used for forecasting the risk premium on a monthly basis, which has important practical implications for policymakers interested in the timely monitoring of risks in the GCC.
Author: Geert Bekaert
Publisher:
ISBN:
Category : Foreign exchange
Languages : en
Pages : 30
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Author: Bonghan Kim
Publisher:
ISBN:
Category :
Languages : en
Pages : 238
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Book Description
Author: Charles Engel
Publisher:
ISBN:
Category : Foreign exchange futures
Languages : en
Pages : 128
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Book Description
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.
