This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Forward Premium Puzzle: Futures Contracts Evidence and Speculation Strategies

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Alina Piciorea
Abstract

Almost thirty years ago, researchers found the forward exchange rate to be a biased predictor of the future spot exchange rate. Worse, in a regression of the future change in the spot rate against the forward discount, the exchange rate was found on average to move in precisely the opposite direction from what was predicted. This surprising finding has been replicated many times since, on many sets of data, and with many refinements. We propose to bring new evidence in support of the forward premium puzzle by using the futures contracts instead of the forward ones and then to quantify the economical significance of UIP failure, by exploring two currency speculation strategies.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.dofin.ase.ro/Working%20papers/Piciorea%20Alina/alina.piciorea.dissertation.pdf
File Format: application/pdf
File Function: First version, 2008
Download Restriction: no

Publisher Info
Paper provided by Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB in its series Advances in Economic and Financial Research - DOFIN Working Paper Series with number 8.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: May 2008
Date of revision:
Handle: RePEc:cab:wpaefr:8

Contact details of provider:
Web page: http://www.dofin.ase.ro/carfib/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Ciprian Necula).

Related research
Keywords: Forward Premium Puzzle;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Chaboud, Alain P. & Wright, Jonathan H., 2005. "Uncovered interest parity: it works, but not for long," Journal of International Economics, Elsevier, vol. 66(2), pages 349-362, July. [Downloadable!] (restricted)
    Other versions:
  2. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May. [Downloadable!] (restricted)
  3. Baillie, Richard T. & Bollerslev, Tim, 2000. "The forward premium anomaly is not as bad as you think," Journal of International Money and Finance, Elsevier, vol. 19(4), pages 471-488, August. [Downloadable!] (restricted)
  4. Robert J. Hodrick & Sanjay Srivastava, 1986. "The Covariation of Risk Premiums and Expected Future Spot Exchange Rates," NBER Working Papers 1749, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Bekaert, Geert & Hodrick, Robert J., 1993. "On biases in the measurement of foreign exchange risk premiums," Journal of International Money and Finance, Elsevier, vol. 12(2), pages 115-138, April. [Downloadable!] (restricted)
    Other versions:
  6. Frenkel, Jacob A, 1980. "Exchange Rates, Prices, and Money: Lessons from the 1920's," American Economic Review, American Economic Association, vol. 70(2), pages 235-42, May. [Downloadable!] (restricted)
  7. Nelson Mark & Yangru Wu, 1998. "Rethinking Deviations from Uncovered Interest Parity: The Role of Covariance Risk and Noise," Working Papers 98-05, Ohio State University, Department of Economics. [Downloadable!]
    Other versions:
  8. Jacob A. Frenkel, 1980. "Exchange Rates, Prices and Money: Lessons from the 1920s," NBER Working Papers 0452, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. McCallum, Bennett T., 1994. "A reconsideration of the uncovered interest parity relationship," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 105-132, February. [Downloadable!] (restricted)
    Other versions:
  10. Frenkel, Jacob A, 1977. "The Forward Exchange Rate, Expectations, and the Demand for Money: The German Hyperinflation," American Economic Review, American Economic Association, vol. 67(4), pages 653-70, September. [Downloadable!] (restricted)
  11. Baillie, Richard T & Bollerslev, Tim, 1989. " Common Stochastic Trends in a System of Exchange Rates," Journal of Finance, American Finance Association, vol. 44(1), pages 167-81, March. [Downloadable!] (restricted)
  12. Hsieh, David A., 1984. "Tests of rational expectations and no risk premium in forward exchange markets," Journal of International Economics, Elsevier, vol. 17(1-2), pages 173-184, August. [Downloadable!] (restricted)
  13. Charles Engel, 1996. "The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence," NBER Working Papers 5312, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Chang, Carolyn W & Chang, Jack S K, 1990. " Forward and Futures Prices: Evidence from the Foreign Exchange Markets," Journal of Finance, American Finance Association, vol. 45(4), pages 1333-36, September. [Downloadable!] (restricted)
  15. Meese, Richard A & Singleton, Kenneth J, 1982. " On Unit Roots and the Empirical Modeling of Exchange Rates," Journal of Finance, American Finance Association, vol. 37(4), pages 1029-35, September. [Downloadable!] (restricted)
  16. Hai, Weike & Mark, Nelson C & Wu, Yangru, 1997. "Understanding Spot and Forward Exchange Rate Regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(6), pages 715-34, Nov.-Dec.. [Downloadable!]
  17. Frankel, Jeffrey A & Chinn, Menzie D, 1993. "Exchange Rate Expectations and the Risk Premium: Tests for a Cross Section of 17 Currencies," Review of International Economics, Blackwell Publishing, vol. 1(2), pages 136-44, June.
    Other versions:
Full references

Statistics
Access and download statistics

Did you know? You can create your own reading lists on IDEAS.

This page was last updated on 2009-11-26.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.