Econometrics of the forward premium puzzle

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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.identifier.uri http://hdl.handle.net/1794/1928
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.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


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