Interest Rate Risk and the Forward Premium Anomaly in Foreign Exchange Markets
نویسندگان
چکیده
منابع مشابه
Interest Rate Risk and the Forward Premium Anomaly in Foreign Exchange Markets
This paper shows that even adjusted for the time-varying risk premiums implied by the yield curves across countries, uncovered interest parity is still strongly rejected by the data. Moreover, factors that predict the excess bond returns are found not significant at all in predicting the foreign exchange returns. These results reject the joint restrictions on the exchange rate and interest rate...
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ISK is a characteristic of existence. Attempts to avoid it explain such arrangements as insurance, limited liability firms and diversification of investment portfolios. In recent years, risk aversion and the attendant premium for risk-bearing have been used increasingly to explain a stubborn paradox in the empirical exchange rate literature: the failure of the forward exchange rate to he an unb...
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Assuming that daily spot exchange rates follow a martingale process. we derive the implied time series process for the vector of 30-day forward rate forecast errors from using weekly data. The conditional second moment matrix of this vector is modeled as a multivariate generalized ARCH process. The estimated model is used to test the hypothesis that the risk premium is a linear function of the ...
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The relation between the volatilities of pricing kernels associated with different currencies and the volatility of the exchange rate between the currencies is derived under the assumption of integrated capital markets, and the volatilities of the pricing kernels are related to the foreign exchange risk premium. Time series of pricing kernel volatilities are estimated from panel data on bond yi...
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Numerous academic studies examine equity risk premium predictability based on various macroeconomic variables and price and volume based variables from stock market. In this article, we extend the frontier of the set of predictors from macroeconomic variables and stock market variables to foreign exchange market variables due to various reasons. Firstly, foreign exchange market reflects various...
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ژورنال
عنوان ژورنال: Journal of Money, Credit and Banking
سال: 2007
ISSN: 0022-2879,1538-4616
DOI: 10.1111/j.0022-2879.2007.00031.x