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An Empirical Analysis of Ex Ante Profits from Forward Speculation in Foreign Exchange Markets

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  • Canova, Fabio

Abstract

This paper constructs a time-series band for ex ante profits from forward speculation and examines the permanent components of the median of the band for six different exchange markets. The unpredictability of ex ante profits is rejected using nonparametric tests. Deviations of ex ante profits from forward premia are attributed to deviations of nominal exchange rates from martingale processes. It is shown that movements in the terms of trade are responsible for most of the variability and serial correlation properties of ex ante profits. Copyright 1991 by MIT Press.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 73 (1991)
Issue (Month): 3 (August)
Pages: 489-96

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Handle: RePEc:tpr:restat:v:73:y:1991:i:3:p:489-96

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Web page: http://mitpress.mit.edu/journals/

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Cited by:
  1. Balvers, Ronald & Wu, Yangru, 2010. "Optimal transaction filters under transitory trading opportunities: Theory and empirical illustration," Journal of Financial Markets, Elsevier, Elsevier, vol. 13(1), pages 129-156, February.
  2. Engel, Charles, 1996. "The forward discount anomaly and the risk premium: A survey of recent evidence," Journal of Empirical Finance, Elsevier, Elsevier, vol. 3(2), pages 123-192, June.
  3. Ram Bhar & Carl Chiarella & Toan Pham, 2000. "Modeling the Currency Forward Risk Premium: Theory and Evidence," Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney 41, Quantitative Finance Research Centre, University of Technology, Sydney.

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