Do Foreign Excess Return Regressions Convey Valid Information?

Seongman Moon and Carlos Velasco

No 1109, Working Papers from Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy)

Abstract: 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.

Keywords: near-unit discount factor; unit root fundamentals; contemporaneous correlation; present value model. (search for similar items in EconPapers)
JEL-codes: C12 C14 F31 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2011-09
New Economics Papers: this item is included in nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://tinyurl.com/ymn3rjv4 First version, 2011 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sgo:wpaper:1109

Access Statistics for this paper

More papers in Working Papers from Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy) Contact information at EDIRC.
Bibliographic data for series maintained by Jung Hur ().