The pricing of forward exchange rates
AbstractThis paper addresses the question: do risk premia account for the observed time-varying discrepancies between forward and corresponding future spot exchange rates? A simple theoretical framework is used to derive testable restrictions on the parameters of a multivariate regression model. Using various econometric procedures and different estimation periods, the data reject the restrictions. In contrast to past investigations, the empirical results are inconsistent with a world in which time-varying risk premia are the sole determinants of observed deviations from the unbiased expectations hypothesis. Anticipated real exchange rate movements may explain the rejection.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Money and Finance.
Volume (Year): 8 (1989)
Issue (Month): 2 (June)
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Web page: http://www.elsevier.com/locate/inca/30443
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