On Tests of the Existence of Time Variable Risk Premia in the Forward Foreign Exchange Market

Peter Bossaerts

University of California at Los Angeles, Anderson Graduate School of Management from Anderson Graduate School of Management, UCLA

Abstract: It is shown here that the existence of a time variable risk premium cannot be tested without additional specification as to how such a premium should be related to observable variables. Recent empirical results are discussed in this context and it is argued that no conclusive evidence of a time variable risk premium has been found as yet because of the possibility of market inefficiency. A similar criticism applies to tests concerning futures markets and markets for (nominally) risk free assets.

Date: 1985-07-01
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