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The Japanese yen futures returns, spot returns, and the risk premium

  • Inci, Ahmet Can
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    Japanese yen currency dynamics are investigated in spot and futures markets. Maturity is proposed as a proxy for the time-varying risk premium. As the maturity of a yen futures contract nears, there is less uncertainty implying a small absolute risk premium. A longer maturity is associated with uncertainty about the economy, the underlying currency, and the contract; and implies a high risk premium. Models that include maturity in addition to the futures-spot basis as explanatory variables exhibit better empirical performance in explaining futures returns and spot returns. The results are robust to different sample periods, forecast horizons, and estimation techniques.

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    File URL: http://www.sciencedirect.com/science/article/B6W4F-4PNFV7P-4/1/8fef4b03664fdf231530c5c06c366f09
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    Article provided by Elsevier in its journal Global Finance Journal.

    Volume (Year): 18 (2008)
    Issue (Month): 3 ()
    Pages: 385-399

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    Handle: RePEc:eee:glofin:v:18:y:2008:i:3:p:385-399
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620162

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