The forward premium puzzle in a model of imperfect information

Rui Albuquerque

Economics Letters, 2008, vol. 99, issue 3, pages 461-464

Abstract: This paper studies the forward premium puzzle in a model with imperfect information. The model predicts fixed effects and conditional heteroskedasticity in the forward premium regression and provides a rationale for the evidence in Mayfield and Murphy [Mayfield, E.S., Murphy, R.G. 1992. Interest rate parity and the exchange risk premium, Economics Letters 40, 319-324].

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