The pricing of forward exchange rates

Ross Levine ()

No 312, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper addresses the question: do risk premia account for the observed time-varying discrepancies between forward and corresponding future spot exchange rates? A simple theoretical framework is used to derive testable restrictions on the parameters of a multivariate regression model. Using various econometric procedures and different estimation periods, the data reject the restrictions. In contrast to past investigations, the empirical results are inconsistent with a world in which time-varying risk premia are the sole determinants of observed deviations from the unbiased expectations hypothesis. Anticipated real exchange rate movements may explain the rejection.

Keywords: Foreign exchange futures; Prices; Foreign exchange rates (search for similar items in EconPapers)
Date: 1987
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Related works:
Journal Article: The pricing of forward exchange rates (1989)
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