Rationality and the Risk Premium on the Australian dollar
A Model of the forward rate error of the USD/AUD spot exchange rate is fitted to daily data for the period 15th December 1983 to 31st December 1991. This provides a data set of 2034 daily trading observations. Explanations of the forecast error include a risk premium represented by a constant plus the conditional variance generated from a GARCH (1,1)-M analysis of the error process and information variables in the form of lagged forward rate errors. The following conclusions are drawn form estimates for the full sample: the USD/AUD spot rate is subject to a constant premium: there is little evidence to support a time varying component and the market is influenced by lagged forward errors. Sub period estimation confirms these results, although a time varying premium is evident prior to the February 1985 depreciation. The economic implications of these findings are discussed. [F31]
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 11 (1997)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RIEJ20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RIEJ20|
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.:
- Felmingham, B S & Buchanan, Michael, 1993. "The Discrete Variation of the Risk Premium on the Australian Dollar," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 329-340, August.
- Don E. Roper, 1975. "The Role of Expected Value Analysis for Speculative Decisions in the Forward Currency Market," The Quarterly Journal of Economics, Oxford University Press, vol. 89(1), pages 157-169.
- Engle, Robert & Granger, Clive, 2015.
"Co-integration and error correction: Representation, estimation, and testing,"
Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-276, March.
- John F. O. Bilson, 1980.
"The "Speculative Efficiency" Hypothesis,"
NBER Working Papers
0474, National Bureau of Economic Research, Inc.
- Charles Engel & Anthony P. Rodrigues, 1987.
"Tests of International CAPM with Time-Varying Covariances,"
NBER Working Papers
2303, National Bureau of Economic Research, Inc.
- Engel, Charles & Rodrigues, Anthony P, 1989. "Tests of International CAPM with Time-Varying Covariances," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(2), pages 119-138, April-Jun.
- Kenneth D. West & Hali J. Edison & Dongchul Cho, 1992.
"A Utility Based Comparison of Some Models of Exchange Rate Volatility,"
NBER Technical Working Papers
0128, National Bureau of Economic Research, Inc.
- West, Kenneth D. & Edison, Hali J. & Cho, Dongchul, 1993. "A utility-based comparison of some models of exchange rate volatility," Journal of International Economics, Elsevier, vol. 35(1-2), pages 23-45, August.
- Kenneth D. West & Hali J. Edison & Dongchul Cho, 1993. "A utility based comparison of some models of exchange rate volatility," International Finance Discussion Papers 441, Board of Governors of the Federal Reserve System (U.S.).
- Lars Peter Hansen & Robert J. Hodrick, 1983. "Risk Averse Speculation in the Forward Foreign Exchange Market: An Econometric Analysis of Linear Models," NBER Chapters, in: Exchange Rates and International Macroeconomics, pages 113-152 National Bureau of Economic Research, Inc.
- Jeffrey A. Frankel & Kenneth A. Froot, 1985. "Using Survey Data to Test Some Standard Propositions Regarding Exchange Rate Expectations," NBER Working Papers 1672, National Bureau of Economic Research, Inc.
- Hodrick, Robert J., 1989.
"Risk, uncertainty, and exchange rates,"
Journal of Monetary Economics,
Elsevier, vol. 23(3), pages 433-459, May.
- Domowitz, Ian & Hakkio, Craig S., 1985. "Conditional variance and the risk premium in the foreign exchange market," Journal of International Economics, Elsevier, vol. 19(1-2), pages 47-66, August.
- William A. Brock, 1982.
"Asset Prices in a Production Economy,"
in: The Economics of Information and Uncertainty, pages 1-46
National Bureau of Economic Research, Inc.
- Frankel, Jeff & Froot, Ken, 1986.
"Using Survey Data to Test Standard Propositions Regarding Exchange Rate Expectations,"
Department of Economics, Working Paper Series
qt1972q8wm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Frankel, Jeffrey A & Froot, Kenneth A, 1987. "Using Survey Data to Test Standard Propositions Regarding Exchange Rate Expectations," American Economic Review, American Economic Association, vol. 77(1), pages 133-153, March.
- Jeremy J. Siegel, 1972. "Risk, Interest Rates and the Forward Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 86(2), pages 303-309.
- Rich, Robert W. & Raymond, Jennie & Butler, J. S., 1991. "Generalized instrumental variables estimation of autoregressive conditional heteroskedastic models," Economics Letters, Elsevier, vol. 35(2), pages 179-185, February.
- Tease, Warren J, 1988. "Speculative Efficiency and the Exchange Rate: Some Evidence since the Float," The Economic Record, The Economic Society of Australia, vol. 64(184), pages 2-13, March.
- Ernst R. Berndt & Bronwyn H. Hall & Robert E. Hall & Jerry A. Hausman, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 653-665 National Bureau of Economic Research, Inc.
- Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-547, August.
When requesting a correction, please mention this item's handle: RePEc:taf:intecj:v:11:y:1997:i:3:p:47-59. 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: (Michael McNulty)
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.