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The Thursday effect of the forward premium puzzle

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  • Ding, Liang

Abstract

This paper examines the day-of-the-week effect for the forward premium puzzle. The paper finds that Thursday consistently appears to be a special day on which the deviation from the unbiasedness hypothesis is much less compared to other weekdays across currencies. In addition to Thursday, Monday is also found to be a similar special day for the Euro. The paper proposes that this Thursday effect (Monday effect for the Euro) is caused by monetary announcements released constantly on Tuesday (Thursday) by the FOMC (the European Central Bank). The paper provides extensive empirical evidence in favor of the proposed explanation.

Suggested Citation

  • Ding, Liang, 2012. "The Thursday effect of the forward premium puzzle," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 302-318.
  • Handle: RePEc:eee:reveco:v:21:y:2012:i:1:p:302-318
    DOI: 10.1016/j.iref.2011.08.005
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    References listed on IDEAS

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    5. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
    6. Zhou, Su & Kutan, Ali M., 2005. "Does the forward premium anomaly depend on the sample period used or on the sign of the premium?," International Review of Economics & Finance, Elsevier, vol. 14(1), pages 17-25.
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    14. Bansal, Ravi, 1997. "An Exploration of the Forward Premium Puzzle in Currency Markets," Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 369-403.
    15. Breuer, Janice Boucher & Wohar, Mark E, 1996. "The Road Less Travelled: Institutional Aspects of Data and Their Influence on Empirical Estimates with an Application to Tests of Forward Rate Unbiasedness," Economic Journal, Royal Economic Society, vol. 106(434), pages 26-38, January.
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    Cited by:

    1. Chu, Shiou-Yen, 2015. "Funding liquidity constraints and the forward premium anomaly in a DSGE model," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 76-89.
    2. Nessrine Hamzaoui & Boutheina Regaieg, 2016. "The Glosten-Jagannathan-Runkle-Generalized Autoregressive Conditional Heteroscedastic approach to investigating the foreign exchange forward premium volatility," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1608-1615.
    3. Norman C. Miller, 2014. "Exchange Rate Economics," Books, Edward Elgar Publishing, number 14981.

    More about this item

    Keywords

    Forward premium puzzle; Day-of-the-week effect; Central Bank; Monetary announcements;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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