Long-Memory Risk Premia in Exchange Rates

David Byers and David Peel

The Manchester School of Economic & Social Studies, 1996, vol. 64, issue 4, 421-38

Abstract: The authors examine the time series properties of spot rates, forecast errors, and forward premia for several countries in both the interwar and postwar floating exchange rate periods. They find that forward premia often appear to be well described by fractional processes, suggesting that risk premia follow fractional processes given rational expectations. This empirical finding is consistent with existing theoretical models if the underlying forces driving the risk premium involve fractional processes. Copyright 1996 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:bla:manch2:v:64:y:1996:i:4:p:421-38

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