Is it risk? : Explaining deviations from uncovered interest parity
This paper analyzes ex-ante returns to forward speculation and asks if these returns can be explained by models of a foreign exchange risk premium. After presenting evidence that both nominal and real expected speculative profits are non-zero, the paper examines if real returns to forward speculation are consistent with consumption-based models of risk premia. Estimates of the conditional covariance between real speculative returns and real consumption growth are presented and, like ex-ante returns to forward speculation, they exhibit statistically significant fluctuations over time and often change sign.
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- Robert J. Hodrick & Sanjay Srivastava, 1983.
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NBER Working Papers
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- Maurice Obstfeld & Robert E. Cumby & John Huizinga, 1983.
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NBER Technical Working Papers
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- Cumby, Robert E. & Huizinga, John & Obstfeld, Maurice, 1983. "Two-step two-stage least squares estimation in models with rational expectations," Journal of Econometrics, Elsevier, vol. 21(3), pages 333-355, April.
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- Giovannini, Alberto & Jorion, Philippe, 1987. "Interest rates and risk premia in the stock market and in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 6(1), pages 107-123, March.
- Meese, Richard A & Singleton, Kenneth J, 1982. " On Unit Roots and the Empirical Modeling of Exchange Rates," Journal of Finance, American Finance Association, vol. 37(4), pages 1029-35, September.
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- Frankel, Jeffrey A., 1982. "In search of the exchange risk premium: A six-currency test assuming mean-variance optimization," Journal of International Money and Finance, Elsevier, vol. 1(1), pages 255-274, January.
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