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On Estimating Risk Premium With Flexible Fourier Form

Author

Listed:
  • Jing Li

    (Miami University)

Abstract

This paper proposes a semi-parametric estimate of risk premium using the Flexible Fourier From with a small number of low-frequency components. We provide an application to the forecast error decomposition based on the uncovered interest rate parity (UIP). Limited support is found for the omitted-variable explanation of the UIP puzzle.

Suggested Citation

  • Jing Li, 2021. "On Estimating Risk Premium With Flexible Fourier Form," Economics Bulletin, AccessEcon, vol. 41(3), pages 1026-1035.
    • Handle: RePEc:ebl:ecbull:eb-20-00183
    as

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    References listed on IDEAS

    as
    1. Hess, Alan C & Kamara, Avraham, 2005. "Conditional Time-Varying Interest Rate Risk Premium: Evidence from the Treasury Bill Futures Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(4), pages 679-698, August.
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    7. Solène Collot & Tobias Hemauer, 2021. "A literature review of new methods in empirical asset pricing: omitted-variable and errors-in-variable bias," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 35(1), pages 77-100, March.
    8. Li, Dandan & Ghoshray, Atanu & Morley, Bruce, 2012. "Measuring the risk premium in uncovered interest parity using the component GARCH-M model," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 167-176.
    9. Walter Enders & Junsoo Lee, 2012. "A Unit Root Test Using a Fourier Series to Approximate Smooth Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(4), pages 574-599, August.
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    More about this item

    Keywords

    Flexible Fourier Form; Risk Premium; UIP Puzzle;
    All these keywords.

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • F3 - International Economics - - International Finance

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