Do Foreign Excess Return Regressions Convey Valid Information?
This paper shows that the estimates in the spot return regression in the foreign exchange markets may not convey valid information if exchange rates are generated from the present value model with the near unit discount factor and unit root fundamentals. The main reason is that the present value model generates a large magnitude of a bias in the estimation of the regression accompanied by a wide distribution of the estimates. On the other hand, the implications of the present value model for the volatility and persistence of the spot return and the forward premium are consistent with the data.
|Date of creation:||Sep 2011|
|Date of revision:|
|Contact details of provider:|| Postal: 1 Sinsu-dong, Mapo-gu, Seoul 121-742|
Web page: http://home.sogang.ac.kr/sites/sgrime
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:sgo:wpaper:1109. 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: (In Choi)
If references are entirely missing, you can add them using this form.