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

The Spot Forward Exchange Rate Relation in Indian Foreign Exchange Market - An Analysis

Contents:

Author Info

  • Nath, Golaka
Registered author(s):

    Abstract

    Forward exchange rate bias explanation generally falls into two categories – assumption of rational expectation resulting in a risk premium and expectation errors which is systematic. The paper tests the bias in the Indian forward exchange markets using one-month and three month forward contracts. The study finds that the three month contracts have larger prediction errors than the one-month contracts. The also paper finds that the prediction errors have information content which leads to assume the presence of risk premium. The study also finds that risk one-month contracts have lesser variability vis-à-vis the three month contracts.

    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://mpra.ub.uni-muenchen.de/51591/
    File Function: original version
    Download Restriction: no

    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 51591.

    as in new window
    Length:
    Date of creation: 09 Oct 2013
    Date of revision:
    Handle: RePEc:pra:mprapa:51591

    Contact details of provider:
    Postal: Schackstr. 4, D-80539 Munich, Germany
    Phone: +49-(0)89-2180-2219
    Fax: +49-(0)89-2180-3900
    Web page: http://mpra.ub.uni-muenchen.de
    More information through EDIRC

    Related research

    Keywords: forward exchange rate; India; CCIL; bias; puzzle; exchange rate premium; exchange rate;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    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. Akram, Q. Farooq & Rime, Dagfinn & Sarno, Lucio, 2008. "Arbitrage in the foreign exchange market: Turning on the microscope," Journal of International Economics, Elsevier, Elsevier, vol. 76(2), pages 237-253, December.
    2. Richard T. Baillie & Rehim Kilic, 2005. "Do Asymmetric and Nonlinear Adjustments Explain the Forward Premium Anomaly?," Working Papers, Queen Mary, University of London, School of Economics and Finance 543, Queen Mary, University of London, School of Economics and Finance.
    3. Maurice Obstfeld & Kenneth Rogoff & Ben Bernanke & Kenneth Rogoff, . "The Six Major Puzzles in International Macroeconomics: Is there a Common Cause?," Working Paper 32326, Harvard University OpenScholar.
    4. Jon Faust & John H. Rogers, 1999. "Monetary policy's role in exchange rate behavior," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 652, Board of Governors of the Federal Reserve System (U.S.).
    5. Menzie D. Chinn & Guy Meredith, 2004. "Monetary Policy and Long-Horizon Uncovered Interest Parity," IMF Staff Papers, Palgrave Macmillan, vol. 51(3), pages 409-430, November.
    6. Levent, Korap, 2010. "Does the uncovered interest parity hold in short horizons?," MPRA Paper 20788, University Library of Munich, Germany.
    7. Sercu, Piet & Vinaimont, Tom, 2006. "The forward bias in the ECU: Peso risks vs. fads and fashions," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(8), pages 2409-2432, August.
    8. Nijman, T.E. & Palm, F.C. & Wolff, C.C.P., 1993. "Premia in forward foreign exchange as unobserved components," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-153275, Tilburg University.
    9. Arnaud Mehl & Lorenzo Cappiello, 2009. "Uncovered Interest Parity at Long Horizons: Evidence on Emerging Economies ," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 17(5), pages 1019-1037, November.
    10. Frankel, Jeffrey A. & Poonawala, Jumana, 2009. "The Forward Market in Emerging Currencies: Less Biased than in Major Currencies," Scholarly Articles, Harvard Kennedy School of Government 4448888, Harvard Kennedy School of Government.
    11. Chakraborty, Avik & Evans, George W., 2008. "Can perpetual learning explain the forward-premium puzzle?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 55(3), pages 477-490, April.
    12. Nathan S. Balke & Mark E. Wohar, 1997. "Nonlinear dynamics and covered interest rate parity," Working Papers, Federal Reserve Bank of Dallas 9701, Federal Reserve Bank of Dallas.
    13. Nijman, Theo E & Palm, Franz C & Wolff, Christian C P, 1993. "Premia in Forward Foreign Exchange as Unobserved Components: A Note," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 11(3), pages 361-65, July.
    14. Leon, Hyginus & Sarno, Lucio & Valente, Giorgio, 2006. "Nonlinearity in Deviations from Uncovered Interest Parity: An Explanation of the Forward Bias Puzzle," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5527, C.E.P.R. Discussion Papers.
    15. Sercu, Piet & Vandebroek, Martina & Wu, Xueping, 2008. "Is the forward bias economically small? Evidence from European rates," Journal of International Money and Finance, Elsevier, Elsevier, vol. 27(8), pages 1284-1302, December.
    16. Briys, Eric & Solnik, Bruno, 1992. "Optimal currency hedge ratios and interest rate risk," Journal of International Money and Finance, Elsevier, Elsevier, vol. 11(5), pages 431-445, October.
    17. Alain P. Chaboud & Jonathan H. Wright, 2003. "Uncovered interest parity: it works, but not for long," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 752, Board of Governors of the Federal Reserve System (U.S.).
    18. Bing Han, 2004. "Is the forward premium puzzle universal?," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 11(2), pages 131-134.
    19. Dibooglu, Selahattin, 1998. "Forward Speculation, Excess Returns, and Exchange Rate Variability: The Role of Risk Premiums," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 6(3), pages 427-40, August.
    20. Lucio Sarno, 2005. "Viewpoint: Towards a solution to the puzzles in exchange rate economics: where do we stand?," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 38(3), pages 673-708, August.
    21. Philippe Bacchetta & Eric van Wincoop, 2010. "Infrequent Portfolio Decisions: A Solution to the Forward Discount Puzzle," American Economic Review, American Economic Association, American Economic Association, vol. 100(3), pages 870-904, June.
    22. Jonathan Kearns, 2007. "Commodity Currencies: Why Are Exchange Rate Futures Biased if Commodity Futures Are Not?," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 83(260), pages 60-73, 03.
    23. Fama, Eugene F., 1984. "Forward and spot exchange rates," Journal of Monetary Economics, Elsevier, Elsevier, vol. 14(3), pages 319-338, November.
    24. Hochradl, Markus & Wagner, Christian, 2010. "Trading the forward bias: Are there limits to speculation?," Journal of International Money and Finance, Elsevier, Elsevier, vol. 29(3), pages 423-441, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    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:pra:mprapa:51591. 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: (Ekkehart Schlicht).

    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.