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Exploration of the Foreign Exchange Forward Premiums and the Spot Exchange Return: A Multivariate Approach

Author

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  • Nessrine Hamzaoui

    (Faculty of Economic Sciences and Management of Tunis, Tunis El Manar University, Tunisia)

  • Boutheina Regaieg

    (Faculty of Law, Economics and Management of Jendouba, Tunisia)

Abstract

This paper empirically examines the interdependence between the foreign exchange forward premiums and the spot exchange return through a multivariate generalized autoregressive conditional heteroskedasticity type framework. The purpose of this study is to test the correlation sensitivity to shocks and the to capture the dynamic links between the EUR/USD 1, 3, 6, 9 and 12 months forward premiums and the spot exchange return. Our empirical analysis is based on daily data from January 8, 1999 to January 8, 2016. Our daily analysis reveals the presence of high correlations between the unconditional EUR/USD forward exchange premiums at different horizons and the possible effect of asymmetric shocks on the conditional variance. The estimation results show that the dynamic conditional correlations have a relatively small and insignificant autoregressive effect, in addition to the existence of significant correlation sensitivity to shocks

Suggested Citation

  • Nessrine Hamzaoui & Boutheina Regaieg, 2016. "Exploration of the Foreign Exchange Forward Premiums and the Spot Exchange Return: A Multivariate Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 694-702.
  • Handle: RePEc:eco:journ1:2016-02-45
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    References listed on IDEAS

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    Cited by:

    1. Salha Ben Salem & Sonia Sayari & Moez Labidi, 2024. "Effect of Financial Frictions on Monetary Policy Conduct: A Comparative Analysis of DSGE Models with and without Financial Frictions," Economies, MDPI, vol. 12(3), pages 1-16, March.

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    More about this item

    Keywords

    Forward Premium Anomaly; Dynamic Conditional Correlation-multivariate Generalized Autoregressive Conditional Heteroskedasticity; Conditional Volatility; Volatility Persistence;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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