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Rethinking the forward premium puzzle in a non-linear framework
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Coakley, Jerry and Fuertes, Ana-Maria (2001) Rethinking the forward premium puzzle in a non-linear framework. Working Paper. University of Warwick: Warwick Business School Financial Econometrics Research Centre. Working Papers Series, Vol.2001 (No.6).
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Official URL: http://www2.warwick.ac.uk/fac/soc/wbs/research/wfr...
Abstract
The forward premium puzzle needs to be reformulated since extant
studies address the negative slopes associated with the long dollar
swings of the 1980s. By contrast the insignificant coefficients from
recent data spans can be explained by an unbalanced regression problem
caused by asymmetries in spot returns. These stem from market
frictions such as transaction costs and are associated with overshooting
of spot rates. Monte Carlo experiments show that asymmetries
and overshooting effects produce widely dispersed and statistically insignificant slope coefficients whose small sample mean is close to zero.
Item Type: | Working or Discussion Paper (Working Paper) | ||||
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Subjects: | H Social Sciences > HB Economic Theory Q Science > QA Mathematics |
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Divisions: | Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre Faculty of Social Sciences > Warwick Business School |
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Library of Congress Subject Headings (LCSH): | Foreign exchange -- Mathematical models | ||||
Series Name: | Working Papers Series | ||||
Publisher: | Warwick Business School Financial Econometrics Research Centre | ||||
Place of Publication: | University of Warwick | ||||
Official Date: | May 2001 | ||||
Dates: |
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Volume: | Vol.2001 | ||||
Number: | No.6 | ||||
Status: | Not Peer Reviewed | ||||
Access rights to Published version: | Open Access (Creative Commons) |
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