The Japanese yen futures returns, spot returns, and the risk premium
AbstractJapanese yen currency dynamics are investigated in spot and futures markets. Maturity is proposed as a proxy for the time-varying risk premium. As the maturity of a yen futures contract nears, there is less uncertainty implying a small absolute risk premium. A longer maturity is associated with uncertainty about the economy, the underlying currency, and the contract; and implies a high risk premium. Models that include maturity in addition to the futures-spot basis as explanatory variables exhibit better empirical performance in explaining futures returns and spot returns. The results are robust to different sample periods, forecast horizons, and estimation techniques.
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Bibliographic InfoArticle provided by Elsevier in its journal Global Finance Journal.
Volume (Year): 18 (2008)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/inca/620162
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