The forward market in emerging currencies: Less biased than in major currencies

Journal of International Money and Finance

Volumn 29, Issue 3, 2010, Pages 585-598

  Frankel, Jeffrey ^a   Poonawala, Jumana ^a  

^a HARVARD UNIVERSITY   (United States)

Author keywords

Bias; Emerging markets; Exchange rate; Exchange risk premium; Forward discount; Forward premium; Puzzle; Uncovered interest parity

Indexed keywords

EID: 77149143534     PISSN: 02615606     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jimonfin.2009.11.004     Document Type: Article

References (35)

1. Bacchetta, P., van Wincoop, E., 2005. Rational inattention: a solution to the forward discount puzzle. NBER WP no. 11633.
2. Backus D., Foresi S., and Telmer C. Affine models of currency pricing: implications for the forward premium anomaly. Journal of Finance 56 (2001) 281-311
3. Bansal R., and Dahlquist M. The forward premium puzzle: different tales from developed and emerging economies. Journal of International Economics 51 (2000) 115-144
4. Breuer J.B. Term effects and time-varying risk premium in tests of forward foreign exchange rate unbiasedness. International Journal of Finance and Economics 5 (2000) 211-220
5. Breuer J.B., and Wohar M.W. The road less traveled: institutional aspects of data and their influence on empirical estimates with an application to tests of forward rate unbiasedness. The Economic Journal 106 434 (1996) 26-38
6. Brunnermeier, M., Nagel, S., Pedersen, L., 2009. Carry trades and currency crashes. NBER Macroeconomics Annual 2008 23, 313--347.
7. Burnside, C., Eichenbaum, M., Rebelo, S., 2009. Understanding the forward premium puzzle: a microstructure approach. American Economic Journal: Macroeconomics 1 (2). NBER WP no. 13278.
8. Campbell, R., Kees, K., Lothian, J., Mahieu, R., 2007. Irving Fisher, expectational errors, and the UIP puzzle. Centre for Economic Policy Research discussion paper no. 6294.
9. Chinn M., and Frankel J. Patterns in exchange rate forecasts for 25 currencies. Journal of Money. Credit and Banking 26 24 (1994) 759-770
10. Chinn M., and Frankel J. Survey data on exchange rate expectations: more currencies, more horizons, more tests. In: Dickinson D., and Allen W. (Eds). Monetary Policy, Capital Flows and Financial Market Developments in the Era of Financial Globalisation: Essays in Honour of Max Fry (2002), Routledge, London and New York
11. Engel C. The forward discount anomaly and the risk premium: a survey of recent evidence. Journal of Empirical Finance 3 (1996) 123-192
12. Fama E.F. Forward and spot exchange rates. Journal of Monetary Economics 14 (1984) 319-338
13. Farhi, E., Fraiberger, S.P., Gabaix, X., Ranciere, R., Verdelhan, A., 2009. Crash risk in currency markets. NBER WP no. 15062.
14. Farhi, E., Gabaix, X., 2008. Rare disasters and exchange rates. NBER WP no. 13805.
15. Flood, R., Rose, A. 2002. Uncovered interest parity in crisis: the interest rate defense in the 1990s. IMF working paper 01/207.
16. Frankel J. Tests of rational expectations in the forward exchange rate market. Southern Economic Journal 46 4 (1980) 1083-1101
17. Frankel J. Carried away: everything you wanted to know about the carry trade. Milken Institute Review 10 1 (2008) 38-45
18. Frankel, J., Poonawala, J., 2009. The forward market in emerging currencies: less biased than in major currencies. Harvard Kennedy School RWP09-023.
19. Froot K., and Frankel J. Forward discount bias: is it an exchange risk premium?. Quarterly Journal of Economics 104 1 (1989) 139-161
20. Froot K., and Thaler R. Anomalies: foreign exchange. Journal of Economic Perspectives 4 June (1990) 179-192
21. Gilmore, S., Hayashi, F., 2008. Emerging market currency excess returns. NBER WP no. 14528.
22. Gospodinov N. A new look at the forward premium puzzle. Journal of Financial Econometrics 7 3 (2009) 312-338
23. Hansen L.P., and Hodrick R.J. Forward exchange rates as optimal predictors of future spot rates: an econometric analysis. Journal of Political Economy 88 5 (1980) 829-853
24. Hodrick R. The Empirical Evidence on the Efficiency of Forward and Futures Foreign Exchange Markets (1987), Taylor & Francis, New York
25. Huisman R., Koedijk K., Kool C., and Nissen F. Extreme support for uncovered interest parity. Journal of International Money and Finance 17 (1998) 211-228
26. Lee, B.J., 2006. Uncovered interest parity puzzle: cross-sectional and time-series analysis. Unpublished working paper, University of Notre Dame.
27. Lewis K. Puzzles in international financial markets. In: Grossman G., and Rogoff K. (Eds). Handbook of International Economics Vol. 3 (1995) North Holland
28. Lothian, J., Wu, L. 2005. Uncovered interest-rate parity over the past two centuries. Working Paper 8, Frank J. Petrili Center for Research in International Finance Working Paper series, Fordham University.
29. Lustig H., and Verdelhan A. The cross-section of currency risk premia and US consumption growth risk. American Economic Review 97 1 (2007) 89-117 NBER WP no. 11104
30. Lustig, H., Roussanov, N., Verdelhan, A., 2008. Common risk factors in currency markets. NBER WP no. 14082.
31. Poonawala, J., 2004. Are forward exchange rates biased indicators of spot exchange rates in emerging market economies? Second Year Policy Analysis paper, John. F. Kennedy School of Government, Harvard University.
32. Rogoff, K., 1977. Rational expectations in the foreign exchange market revisited. Unpublished paper, MIT (February).
33. Tryon, R., 1979. Testing for rational expectations in foreign exchange markets. International Finance discussion paper no. 139. Federal Reserve Board.
34. Verdelhan A. A habit-based explanation of the exchange rate risk premium Forthcoming, Journal of Finance (2006), Working paper presented at the NBER Summer Institute
35. Verschoor W.F.C., and Wolff C.C.P. Scandinavian forward discount bias risk premia. Economics Letters 73 1 (2001) 65-72