Explaining Forward Exchange Bias . . . Intraday
AbstractIntraday interest rates are zero. Consequently, a foreign exchange dealer can short a vulnerable currency in the morning, close this position in the afternoon, and never face an interest cost. This tactic might seem especially attractive in times of fixed-rate crisis, since it suggests an immunity to the central bank's interest rate defense. In equilibrium, however, buyers of the vulnerable currency must be compensated on average with an intraday capital gain as long as no devaluation occurs. That is, currencies under attack should typically appreciate intraday. Using data on intraday exchange rate changes within the European Monetary System, we find this prediction is borne out. Copyright 1995 by American Finance Association.
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Bibliographic InfoArticle provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 50 (1995)
Issue (Month): 4 (September)
Other versions of this item:
- Richard K. Lyons and Andrew K. Rose., 1995. "Explaining Forward Exchange Bias...Intraday," Research Program in Finance Working Papers RPF-242, University of California at Berkeley.
- Lyons, Richard K & Rose, Andrew K, 1994. "Explaining Forward Exchange Bias .... Intra-day," CEPR Discussion Papers 1059, C.E.P.R. Discussion Papers.
- Richard K. Lyons & Andrew K. Rose, 1995. "Explaining Forward Exchange Bias..Intraday," NBER Working Papers 4982, National Bureau of Economic Research, Inc.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Richard K. Lyons, 1993.
"Tests of Microstructural Hypotheses in the Foreign Exchange Market,"
NBER Working Papers
4471, National Bureau of Economic Research, Inc.
- Lyons, Richard K., 1995. "Tests of microstructural hypotheses in the foreign exchange market," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 321-351.
- Richard K. Lyons., 1993. "Tests of Microstructural Hypotheses in the Foreign Exchange Market," Research Program in Finance Working Papers RPF-230, University of California at Berkeley.
- Chaboud, Alain P. & Wright, Jonathan H., 2005.
"Uncovered interest parity: it works, but not for long,"
Journal of International Economics,
Elsevier, vol. 66(2), pages 349-362, July.
- Alain P. Chaboud & Jonathan H. Wright, 2003. "Uncovered interest parity: it works, but not for long," International Finance Discussion Papers 752, Board of Governors of the Federal Reserve System (U.S.).
- Pasricha, Gurnain Kaur, 2006. "Survey of Literature on Covered and Uncovered Interest Parities," MPRA Paper 22737, University Library of Munich, Germany.
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