Time-Varying Risk Premia in the Foreign Currency Futures Basis

John Barkoulas and Christopher Baum

No 281., Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: Significant time-varying risk premia exist in the foreign currency futures basis, and these risk premia are meaningfully correlated with common macroeconomic risk factors from equity and bond markets. The stock index dividend yield and the bond default and term spreads in the U.S. markets help forecast the risk premium component of the foreign currency futures basis. The specific source of risk matters, but the relationships are robust across currencies. The currency futures basis is positively associated with the dividend yield and negatively associated with the spread variables. These correlations cannot be attributed to the expected spot price change component of the currency futures basis, thus establishing the presence of a time-varying risk premium component in the currency futures basis.

Keywords: risk premia; foreign exchange (search for similar items in EconPapers)
JEL-codes: C52 E43 F31 (search for similar items in EconPapers)
Pages: 28 pages
Date: 1996-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Published, Journal of Futures Markets 16:7, 735-755.

Downloads: (external link)
http://fmwww.bc.edu/EC-P/wp281.pdf (application/pdf)

Related works:
Journal Article: Time‐varying risk premia in the foreign currency futures basis (1996)
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:boc:bocoec:281

Access Statistics for this paper

More papers in Boston College Working Papers in Economics from Boston College Department of Economics Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F Baum ().