A re-examination of the predicting power of forward premia

Peijie Wang

Applied Financial Economics, 2005, vol. 15, issue 17, 1219-1225

Abstract: The paper proposes that the spot exchange rate consist of two parts. Important information content is with its underlying movement, in accordance with the development in the economy and the adjustment in economic activity. The paper then extracts the underlying movement from the spot exchange rate using the state space method and the frequency domain method. The extracted component is persistent as expected, catching trend movement and matching the statistical characteristics of the forward premium to some degree. Based on the results, the paper is able to reject the finding in many previous studies that the forward premium predicts the future spot rate in a completely wrong way. The paper concludes that the forward premium does not help explain the future spot rate as its most feasible result.

Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/09603100500360920 (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:taf:apfiec:v:15:y:2005:i:17:p:1219-1225

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/09603100500360920

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().