The Japanese yen futures returns, spot returns, and the risk premium

Ahmet Can Inci

Global Finance Journal, 2008, vol. 18, issue 3, 385-399

Abstract: Japanese yen currency dynamics are investigated in spot and futures markets. Maturity is proposed as a proxy for the time-varying risk premium. As the maturity of a yen futures contract nears, there is less uncertainty implying a small absolute risk premium. A longer maturity is associated with uncertainty about the economy, the underlying currency, and the contract; and implies a high risk premium. Models that include maturity in addition to the futures-spot basis as explanatory variables exhibit better empirical performance in explaining futures returns and spot returns. The results are robust to different sample periods, forecast horizons, and estimation techniques.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:18:y:2008:i:3:p:385-399

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