Econometrics of the forward premium puzzle
| dc.contributor.author | Chakraborty, Avik, 1975- | |
| dc.contributor.author | Haynes, Stephen E., 1945- | |
| dc.date.accessioned | 2005-12-15T16:43:08Z | |
| dc.date.available | 2005-12-15T16:43:08Z | |
| dc.date.issued | 2005-09-15 | |
| dc.description | 23 p. | en |
| dc.description.abstract | This paper explores from a new perspective the forward premium puzzle, i.e., why a regression of the change in the future spot exchange rate on the forward premium paradoxically yields a coefficient that is frequently negative. This traditional specification is compared theoretically and empirically to a "level" regression of the future spot rate on the current forward rate, which does not display the puzzle. We explore both non-rationality and risk premium explanations. The general conclusionis that, with non-rationality, any modest deviation from unity in the level coefficient becomes greatly magnified in the forward premium coefficient because of the stationary/nonstationary properties of the relevant variables, thereby generating the puzzle. | en |
| dc.format.extent | 174479 bytes | |
| dc.format.mimetype | application/pdf | |
| dc.identifier.uri | https://hdl.handle.net/1794/1928 | |
| dc.language.iso | en_US | en |
| dc.publisher | University of Oregon, Dept of Economics | en |
| dc.relation.ispartofseries | University of Oregon Economics Department Working Papers ; 2005-18 | en |
| dc.subject | Forward premium puzzle | en |
| dc.subject | Spot and forward exchange rates | en |
| dc.subject | Foreign exchange market efficiency | en |
| dc.subject | Non-rationality in foreign exchange markets | en |
| dc.title | Econometrics of the forward premium puzzle | en |
| dc.type | Working Paper | en |