A Nonlinear Analysis of Forward Premium and Volatility
Hsu Chiente () and
Kugler Peter ()
Additional contact information
Hsu Chiente: Department of Economics University of Bern
Kugler Peter: Department of Economics University of Bern
Studies in Nonlinear Dynamics & Econometrics, 1997, vol. 1, issue 4, 1-17
In this paper we investigate the relationship between risk premium and a time-varying conditional variance of spot rate using weekly Swiss franc/US dollar exchange-rate data. First, we apply an EGARCH-in-mean framework to test the unbiasedness hypothesis of the forward rate with a volatility dependent risk premium. The corresponding estimates point to no significant influence of volatility on the risk premium, and reject the unbiasedness hypothesis. Second, we apply a seminonparametric, nonlinear impulse-response analysis to the spot-rate change and the forward premium. This framework allows us to analyze the risk premium/volatility relationship without using a specific, parametric model such as EGARCH-in-mean. The latter analysis confirms the negative EGARCH-in-mean results with respect to the risk premium/volatility relationship, although the volatility dynamics estimated is clearly different from that implied by the EGARCH estimate. Moreover, the forward premium has a nonlinear dynamic influence on the spot rate, whereas the converse is not true.
References: Add references at CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
https://www.degruyter.com/view/j/snde.1997.1.4/snd ... .1022.xml?format=INT (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bpj:sndecm:v:1:y:1997:i:4:n:2
Ordering information: This journal article can be ordered from
Access Statistics for this article
Studies in Nonlinear Dynamics & Econometrics is currently edited by Bruce Mizrach
More articles in Studies in Nonlinear Dynamics & Econometrics from De Gruyter
Series data maintained by Peter Golla ().