Term Effects and the Time-Varying Risk Premium in Tests of Forward Foreign Exchange Rate Unbiasedness
AbstractThe term (or number of days) until a 1-month forward contract is delivered may play a systematic role in the empirical estimates of the coefficient on the forward premium in tests of forward foreign exchange rate unbiasedness. These term effects arise because a 1-month forward contract is not equal to a pre-specified number of days and, thus, the risk of valuation changes over the life of the contract depend on the contract's exact term. The term effect is consistent with a time-varying risk premium. However, empirical results provide no evidence of a term effect and so other explanations must be considered. Copyright @ 2000 by John Wiley & Sons, Ltd. All rights reserved.
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Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.
Volume (Year): 5 (2000)
Issue (Month): 3 (July)
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Web page: http://www.interscience.wiley.com/jpages/1076-9307/
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- Frankel, Jeffrey & Poonawala, Jumana, 2010.
"The forward market in emerging currencies: Less biased than in major currencies,"
Journal of International Money and Finance,
Elsevier, vol. 29(3), pages 585-598, April.
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- Frankel, Jeffrey A. & Poonawala, Jumana, 2009. "The Forward Market in Emerging Currencies: Less Biased than in Major Currencies," Scholarly Articles 4448888, Harvard Kennedy School of Government.
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