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Do Spot Rate Volatility and Forward Market Intervention by the Central Bank Impact the Forward Premia in India?

Author

Listed:
  • Dipankar Biswas

    (Department of Financial Markets Operations, Reserve Bank of India, Mumbai – 400001, India)

  • Sunil Kumar

    (Department of Economic and Policy Research, Reserve Bank of India, Mumbai – 400001, India)

  • Anand Prakash

    (Department of Financial Markets Operations, Reserve Bank of India, Mumbai – 400001, India)

Abstract

This study investigates the impact of exchange rate volatility as well as forward market intervention on forward premia in the Indian case. The study finds that the exchange rate volatility positively impacts month-over-month change in forward premia. In fact, inclusion of the exchange rate volatility is found to reduce the out-of-sample forecast error of forward premia. Forward market intervention, however, is not found to have any significant impact on the forward premia.

Suggested Citation

  • Dipankar Biswas & Sunil Kumar & Anand Prakash, 2018. "Do Spot Rate Volatility and Forward Market Intervention by the Central Bank Impact the Forward Premia in India?," Post-Print hal-05303166, HAL.
    • Handle: RePEc:hal:journl:hal-05303166
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