The forward premium anomaly is not as bad as you think

Journal of International Money and Finance

Volumn 19, Issue 4, 2000, Pages 471-488

  Baillie, Richard T ^a   Bollerslev, Tim ^b  

^a MICHIGAN STATE UNIVERSITY   (United States)

^b DUKE UNIVERSITY   (United States)

Author keywords

FIGARCH; Forward premium; Uncovered interest rate parity

Indexed keywords

EID: 0034239585     PISSN: 02615606     EISSN: None     Source Type: Journal    
DOI: 10.1016/S0261-5606(00)00018-8     Document Type: Article

References (29)

1. Andersen, T.G., Bollerslev, T., 1997. Heterogeneous information arrivals and return volatility dynamics: Uncovering the long-run in high frequency returns. Journal of Finance 52, 975-1005.
2. Backus, D., Foressi, S., Telmer, C., 1996. Affine models of currency pricing. NBER Working Paper No. 5623.
3. Baillie, R.T., 1989. Tests of rational expectations and market efficiency. Econometric Reviews 8, 151-186.
4. Baillie, R.T., Bollerslev, T., 1989. The message in daily exchange rates: A conditional variance tale. Journal of Business and Economic Statistics 7, 297-305.
5. Baillie, R.T., Bollerslev, T., 1990. A multivariate generalized ARCH approach to modeling risk premia in forward foreign exchange rate markets. Journal of International Money and Finance 9, 309-324.
6. Baillie, R.T., Bollerslev, T., 1994. The long-memory of the forward premium. Journal of International Money and Finance 13, 309-324.
7. Baillie, R.T., Bollerslev, T., Mikkelsen, H.O., 1996. Fractionally integrated generalized autoregressive conditional heteroskedasticity. Journal of Econometrics 74, 3-30.
8. Bansal, R., 1997. An exploration of the forward premium puzzle in currency markets. Review of Financial Studies 10, 369-403.
9. Bekaert, G., 1995. The time variation of expected returns and volatility in foreign exchange markets. Journal of Business and Economic Statistics 13, 397-408.
10. Bekaert, G., 1996. The time variation of risk and return in foreign exchange markets: A general equilibrium approach. Review of Financial Studies 9, 427-470.
11. Bekaert, G., Hodrick, R.J., 1992. Characterizing predictable components in excess returns on equity and foreign exchange markets. Journal of Finance 47, 467-509.
12. Bekaert, G., Hodrick, R.J., 1993. On biases in the measurement of foreign exchange risk premiums. Journal of International Money and Finance 12, 115-138.
13. Bekaert, G., Hodrick, R.J., Marshall, D.A., 1997. The implications of first order risk aversion for asset market risk premiums. Journal of Monetary Economics 40, 3-39.
14. Bollerslev, T., Melvin, M., 1994. Bid-ask spreads and volatility in the foreign exchange market: An empirical analysis. Journal of International Economics 36, 355-372.
15. Crowder, W.J., 1994. Foreign exchange market efficiency and common stochastic trends. Journal of InterNational Money and Finance 13, 551-564.
16. Ding, Z., Granger, C.W.J., 1996. Modeling volatility persistence of speculative returns: A new approach. Journal of Econometrics 73, 185-215.
17. Engel, C., 1996. The forward discount anomaly and the risk premium: A survey of recent evidence. Journal of Empirical Finance 3, 123-192.
18. Evans, M.D., Lewis, K.K., 1995. Do long term swings in the dollar affect estimates of the risk premia? Review of Financial Studies 8, 709-742.
19. Fama, E.F., 1984. Spot and forward exchange rates. Journal of Monetary Economics 14, 319-338.
20. Fama, E.F., French, K.R., 1988. Permanent and temporary components of stock prices. Journal of Political Economy 96, 246-273.
21. Frankel, J.A., Froot, K.A., 1987. Using survey data to test standard propositions regarding exchange rate expectations. American Economic Review 77, 133-153.
22. Froot, K.A., Thaler, R.H., 1990. Anomalies: Foreign exchange. Journal of Economic Perspectives 4, 179-192.
23. Hodrick, R.J., 1987. The Empirical Evidence on the Efficiency of Forward and Futures Foreign Exchange Markets. Harwood Academic Publishers, Chur., Switzerland.
24. Hsieh, D.A., 1989. Modeling heteroskedasticity in daily foreign exchange rates. Journal of Business and Economic Statistics 7, 307-317.
25. Macklem, R.T., 1991. Forward exchange rates and risk premiums in artificial economies. Journal of International Money and Finance 10, 365-391.
26. McCallum, B.T., 1994. A reconsideration of the uncovered interest rate parity relationship. Journal of Monetary Economics 33, 105-132.
27. Maynard, A., Phillips, P.C.B., 1998. Rethinking an old empirical puzzle: Econometric evidence on the forward discount anomaly. Yale University Working Paper.
28. Poterba, J.M., Summers, L.H., 1988. Mean reversion in stock prices, evidence and implications. Journal of Financial Economics 22, 27-58.
29. Silverman, B.W., 1986. Density Estimation for Statistics and Data Analysis. Chapman and Hall, New York.