This paper provides evidence on the existence of asymmetries in the underlying loss preferences for the difference between the spot and forward nominal exchange rate. We find that, in the context of both linear and non-linear loss functions, the underlying loss preferences for monthly data are predominantly asymmetric, whilst for weekly exchange rates asymmetry tends to weaken. In a second stage we run cross section regressions to examine what variables drive this asymmetry. Interestingly, besides some macroeconomic variables, such as the growth rate and price changes, political and security risk assert some significant impact on asymmetry.
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Paper provided by Department of Economics, University of Macedonia in its series Discussion Paper Series with number
2008_12.
Find related papers by JEL classification: C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation
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