Advanced Search
MyIDEAS: Login to save this paper or follow this series

Foreign Currency Futures

Contents:

Author Info

  • Robert J. Hodrick
  • Sanjay Srivastava

Abstract

The theoretical nature of risk premiums in foreign currency futures markets is derived and studied empirically. Estimation problems encountered in using futures data are discussed. Since forward rates and futures prices are demonstrated to be approximately equal, and because risk premiums in forward markets are highly variable, consistency of the data requires time variation in daily risk premiums in the futures market. Unbiasedness of daily futures prices as predictors of the following day's futures price is rejected for all currencies. Reconciliation of daily and monthly data requires positive serial correlation in daily risk premiums.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. 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.nber.org/papers/w1743.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1743.

as in new window
Length:
Date of creation: Oct 1985
Date of revision:
Publication status: published as Hodrick, Robert J. and Sanjay Srivastava. "Foreign Currency Futures," Journal of International Economics, Vol. 22, No. 1/2, Feb. 1987, pp. 1-24.
Handle: RePEc:nbr:nberwo:1743

Note: ITI IFM
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

References

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.:
as in new window
  1. Hodrick, Robert J. & Srivastava, Sanjay, 1984. "An investigation of risk and return in forward foreign exchange," Journal of International Money and Finance, Elsevier, Elsevier, vol. 3(1), pages 5-29, April.
  2. Domowitz, Ian & Hakkio, Craig S., 1985. "Conditional variance and the risk premium in the foreign exchange market," Journal of International Economics, Elsevier, Elsevier, vol. 19(1-2), pages 47-66, August.
  3. Hsieh, David A., 1984. "Tests of rational expectations and no risk premium in forward exchange markets," Journal of International Economics, Elsevier, Elsevier, vol. 17(1-2), pages 173-184, August.
  4. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, Econometric Society, vol. 50(5), pages 1269-86, September.
  5. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1029-54, July.
  6. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, Elsevier, vol. 10(3), pages 335-359.
  7. Singleton, Kenneth J., 1985. "Testing specifications of economic agents' intertemporal optimum problems in the presence of alternative models," Journal of Econometrics, Elsevier, Elsevier, vol. 30(1-2), pages 391-413.
  8. John F. O. Bilson, 1980. "The "Speculative Efficiency" Hypothesis," NBER Working Papers 0474, National Bureau of Economic Research, Inc.
  9. Korajczyk, Robert A, 1985. "The Pricing of Forward Contracts for Foreign Exchange," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(2), pages 346-68, April.
  10. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 1(1), pages 19-46, January.
  11. Cumby, Robert E & Obstfeld, Maurice, 1981. "A Note on Exchange-Rate Expectations and Nominal Interest Differentials: A Test of the Fisher Hypothesis," Journal of Finance, American Finance Association, American Finance Association, vol. 36(3), pages 697-703, June.
  12. Cornell, Bradford & Reinganum, Marc R, 1981. "Forward and Futures Prices: Evidence from the Foreign Exchange Markets," Journal of Finance, American Finance Association, American Finance Association, vol. 36(5), pages 1035-45, December.
  13. French, Kenneth R., 1983. "A comparison of futures and forward prices," Journal of Financial Economics, Elsevier, Elsevier, vol. 12(3), pages 311-342, November.
  14. Frenkel, Jacob A & Levich, Richard M, 1977. "Transaction Costs and Interest Arbitrage: Tranquil versus Turbulent Periods," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(6), pages 1209-26, December.
  15. Richard, Scott F. & Sundaresan, M., 1981. "A continuous time equilibrium model of forward prices and futures prices in a multigood economy," Journal of Financial Economics, Elsevier, Elsevier, vol. 9(4), pages 347-371, December.
  16. Cumby, Robert E. & Huizinga, John & Obstfeld, Maurice, 1983. "Two-step two-stage least squares estimation in models with rational expectations," Journal of Econometrics, Elsevier, Elsevier, vol. 21(3), pages 333-355, April.
  17. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(5), pages 829-53, October.
  18. Svensson, Lars E. O., 1985. "Currency prices, terms of trade, and interest rates: A general equilibrium asset-pricing cash-in-advance approach," Journal of International Economics, Elsevier, Elsevier, vol. 18(1-2), pages 17-41, February.
  19. Townsend, Robert M., 1987. "Asset-return anomalies in a monetary economy," Journal of Economic Theory, Elsevier, Elsevier, vol. 41(2), pages 219-247, April.
  20. Cox, John C. & Ingersoll, Jonathan Jr. & Ross, Stephen A., 1981. "The relation between forward prices and futures prices," Journal of Financial Economics, Elsevier, Elsevier, vol. 9(4), pages 321-346, December.
  21. Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(1-2), pages 167-179.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Martin Cincibuch & David Vavra, 2004. "Testing for the uncovered interest parity using distributions implied by FX options," Money Macro and Finance (MMF) Research Group Conference 2003, Money Macro and Finance Research Group 16, Money Macro and Finance Research Group.
  2. Li, Wei & Lam, Kin, 2002. "Optimal market timing strategies under transaction costs," Omega, Elsevier, Elsevier, vol. 30(2), pages 97-108, April.
  3. Mun, Kyung-Chun & Morgan, George E., 1997. "Cross-hedging foreign exchange rate risks: The case of deposit money banks in emerging Asian countries," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 5(2), pages 215-230, June.
  4. Wei, Steven X., 2002. "A censored-GARCH model of asset returns with price limits," Journal of Empirical Finance, Elsevier, Elsevier, vol. 9(2), pages 197-223, March.
  5. Solnik, Bruno, 1993. "The performance of international asset allocation strategies using conditioning information," Journal of Empirical Finance, Elsevier, Elsevier, vol. 1(1), pages 33-55, June.
  6. Pan, Ming-Shiun & Chan, Kam C. & C.W. Fok, Robert, 1997. "Do currency futures prices follow random walks?," Journal of Empirical Finance, Elsevier, Elsevier, vol. 4(1), pages 1-15, January.
  7. Kerstin Bernoth & Jürgen von Hagen & Casper G. de Vries, 2010. "The Forward Premium Puzzle and Latent Factors Day by Day," Discussion Papers of DIW Berlin 989, DIW Berlin, German Institute for Economic Research.
  8. Christie-David, Rohan & Chaudhry, Mukesh, 2000. "Currency futures, news releases, and uncertainty resolution," Global Finance Journal, Elsevier, vol. 11(1-2), pages 109-127.
  9. Bong-Chan, Kho, 1996. "Time-varying risk premia, volatility, and technical trading rule profits: Evidence from foreign currency futures markets," Journal of Financial Economics, Elsevier, Elsevier, vol. 41(2), pages 249-290, June.
  10. John Barkoulas & Christopher F. Baum, 1996. "Time-Varying Risk Premia in the Foreign Currency Futures Basis," Boston College Working Papers in Economics, Boston College Department of Economics 281., Boston College Department of Economics.
  11. Wei, K. C. John & Chiang, Raymond, 2004. "A GMM approach for estimation of volatility and regression models when daily prices are subject to price limits," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 12(4), pages 445-461, September.
  12. Kumar, Satish & Trück, Stefan, 2014. "Unbiasedness and risk premiums in the Indian currency futures market," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 29(C), pages 13-32.
  13. Mougoué, Mbodja & Aggarwal, Raj, 2011. "Trading volume and exchange rate volatility: Evidence for the sequential arrival of information hypothesis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(10), pages 2690-2703, October.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1743. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.