The forward premium puzzle and the euro

Jun Nagayasu

No 1317, Working Papers from University of Strathclyde Business School, Department of Economics

Abstract: This paper evaluates the forward premium puzzle using the Euro exchange rate. Unlike previous studies, our analysis utilizes time-varying parameter methods and is based on two approaches for evaluation of the puzzle; the traditional approach analyzing the sensitivity of interest rate differentials to the forward premium, and the other looking into deviations from the covered interest rate parity (CIRP) condition. Then we provide evidence that the forward premium puzzle indeed became more prominent around the time of the recent crisis periods such as the Lehman Shock and the Euro crisis. This is also shown to be consistent with a deterioration in the CIRP.

Keywords: forward premium puzzle; risk premium; time varying parameters; financial crises (search for similar items in EconPapers)
JEL-codes: F31 F36 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2013-08
New Economics Papers: this item is included in nep-eec, nep-mon and nep-upt
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Related works:
Journal Article: The forward premium puzzle and the Euro (2014)
Working Paper: The Forward Premium Puzzle and The Euro (2013)
Working Paper: The Forward Premium Puzzle And The Euro (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:str:wpaper:1317

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