EconPapers    
Economics at your fingertips  
 

Speculative trading and its effect on the forward premium puzzle: new evidence from Japanese yen market

Katarzyna Czech ()
Additional contact information
Katarzyna Czech: Warsaw University of Life Sciences – SGGW, Institute of Economics and Finance, Department of Econometrics and Statistics

Bank i Kredyt, 2020, vol. 51, issue 2, 167-188

Abstract: The aim of the paper is to investigate a forward premium anomaly in reference to the speculation strategy carry trade. The article focuses on the Japanese yen. The paper shows that the existence of the puzzle is highly dependent on the frequency of crisis episodes, the sign and size of the interest rate differential, and the attractiveness of the currency as a target or funding one in carry trade. The study shows that the uncovered interest parity holds during a high-volatility period and the forward premium anomaly arises in a low-volatility regime. However, the anomaly does not appear for all tested exchange rates. For currency pairs with a high interest-rate differential, it seems to apply to the exchange rates where a high-yielding currency is perceived as an attractive target currency. In turn, for currency pairs with slightly different interest rates, it depends highly on the sign of interest rate differential and the currency’s attractiveness as a funding currency.

Keywords: forward premium anomaly; speculation; carry trade; Japanese yen; Markov switching regression (search for similar items in EconPapers)
JEL-codes: C58 E44 F31 G12 G14 G15 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://bankikredyt.nbp.pl/content/2020/02/BIK_02_2020_03.pdf (application/pdf)

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:nbp:nbpbik:v:51:y:2020:i:2:p:167-188

Access Statistics for this article

More articles in Bank i Kredyt from Narodowy Bank Polski Contact information at EDIRC.
Bibliographic data for series maintained by Michał Wieloch ().

 
Page updated 2020-07-23
Handle: RePEc:nbp:nbpbik:v:51:y:2020:i:2:p:167-188