Rethinking the forward premium puzzle in a non-linear framework
Coakley, Jerry and Fuertes, Ana-Maria (2001) Rethinking the forward premium puzzle in a non-linear framework. Working Paper. Warwick Business School Financial Econometrics Research Centre, University of Warwick.
WRAP_Coakley_fwp01-06.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Official URL: http://www2.warwick.ac.uk/fac/soc/wbs/research/wfr...
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)|
|Subjects:||H Social Sciences > HB Economic Theory
Q Science > QA Mathematics
|Divisions:||Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre
Faculty of Social Sciences > Warwick Business School
|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|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
Actions (login required)