Market Instability and Revision Error in Risk Premium

Heeho Kim ()

International Advances in Economic Research, 2011, vol. 17, issue 2, 169-180

Abstract: This paper provides a theory and evidence that the risk premium puzzle is viewed as a phenomenon pertaining to the unstable foreign exchange market. In an unstable market, revision error uncompensated by an initial risk premium accrues due to consumer expectation revision about the ex ante uncertainty of the exchange rate. The risk premium widely deviates from its initial level, depending on the frequency of the consumer expectation revision and the degree of risk aversion. Subsequent evidence shows the existence of the revision errors for the risk premium during the Asian currency crisis and the recent financial crisis periods. Copyright International Atlantic Economic Society 2011

Keywords: Revision error; Risk aversion; Premium puzzle; Forward premium anomaly; F31; G15 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://hdl.handle.net/10.1007/s11294-011-9299-y (text/html)
Access to full text is restricted to subscribers.

Related works:
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:kap:iaecre:v:17:y:2011:i:2:p:169-180:10.1007/s11294-011-9299-y

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/11294

DOI: 10.1007/s11294-011-9299-y

Access Statistics for this article

International Advances in Economic Research is currently edited by Katherine S. Virgo

More articles in International Advances in Economic Research from Springer, International Atlantic Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().