The forward premium puzzle and latent factors day by day

Kerstin Bernoth (), Juergen von Hagen and Casper de Vries

VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century from Verein für Socialpolitik / German Economic Association

Abstract: We use futures instead of forward rates to study the complete maturity spectrum of the forward premium puzzle from two days to six months. At short maturities the slope coeffcient is positive, but these turn negative as the maturity increases to the monthly level. Futures data allow us to control for the influence of an unobserved factor that can be decomposed into a contract-speci fic and a time-to-maturity e ffect. Once we do this, we nd that the coefficients on the forward premium are much closer to one. The latent factor is shown to be related to conventional proxies of risk.

JEL-codes: F31 F37 G13 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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https://www.econstor.eu/bitstream/10419/62017/1/VfS_2012_pid_871.pdf (application/pdf)

Related works:
Working Paper: The Forward Premium Puzzle and Latent Factors Day by Day (2010)
Working Paper: The Forward Premium Puzzle and Latent Factors Day by Day (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc12:62017

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