The Term Structure of Currency Futures' Risk Premia

Kerstin Bernoth (), Juergen von Hagen and Caspar de Vries

EconStor Open Access Articles and Book Chapters, 2022, vol. 54, issue 1, 5-38

Abstract: The use of futures instead of forwards exchange contracts completes the ma-turity spectrum of the correlation between spot yields and the premium. Wefind that the forward premium puzzle appears to be a precrisis phenomenonand is only observed for maturities longer than about 1 month. Differencesin the exposure to risk help to explain cross-sectional spreads in currency ex-cess returns. However, this only applies for medium and longer maturities.Considering that most studies that test the validity of a risk-based approachto currency excess returns focus on short maturity securities, this explainswhy this approach is so often rejected.

Keywords: forward premium puzzle; uncovered interest parity; futures rates; price of risk; currency excess returns; capital asset pricing mode (search for similar items in EconPapers)
JEL-codes: F31 F37 G12 G13 G15 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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Journal Article: The Term Structure of Currency Futures' Risk Premia (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:espost:264447

DOI: 10.1111/jmcb.12872

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