Showing papers on "Forward exchange rate published in 2004"
TL;DR: In this article, the authors apply semiparametric efficient estimation procedures for a seemingly unrelated regression model where the multivariate error density is elliptically symmetric to study the efficiency of the foreign exchange market.
27 citations
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TL;DR: This paper developed a model for the forward and spot exchange rate which allows for the presence of a Markov switching risk premium in the forward market and considered the issue of testing the unbiased forward exchange rate (UFER) hypothesis.
Abstract: This paper develops a model for the forward and spot exchange rate which allows for the presence of a Markov switching risk premium in the forward market and considers the issue of testing the unbiased forward exchange rate (UFER) hypothesis. Using US/UK data, it is shown that the UFER hypothesis cannot be rejected, provided that instrumental variables are used to account for within-regime correlation between explanatory variables and disturbances in the Markov switching model on which the test is based.
2 citations
TL;DR: In this paper, the forward foreign exchange rate was used to distinguish between two types of investor behavior: expectations of implicit guarantees or better future economic fundamentals due to a prospective IMF program.
Abstract: Previous tests of creditor moral hazard cannot distinguish between two types of investor behavior: expectations of implicit guarantees or better future economic fundamentals due to a prospective IMF program The novelty of our approach lies in the inclusion of the forward foreign exchange rate in the empirical tests of creditor moral hazard, which reflects investors' expectations about the country's future fundamentals and allows us to separate the effects of fundamentals from those of moral hazard Using Indonesian financial markets as a case study, we first conduct tests of creditor moral hazard in the Indonesian bond and stock markets Then, we use the forward exchange rate to confirm the interpretation of the bond and stock market results Our results show that IMF-program related news, especially, the announcement of program negotiations, brings about higher stock returns and lower bond spreads, even though the bath sells at a forward discount on the same day These results suggest creditor moral hazard in the Indonesian bond and equity markets
1 citations
TL;DR: In this article, the authors examined the Euro foreign exchange market to test whether it could be considered efficient, and they were forced to reject the Forward Rate Unbiasedness Hypothesis both in bivariate and multivariate systems.
Abstract: This paper examines the Euro foreign exchange market to test whether it could be considered efficient. In a second step, going beyond the implications of the expectations theory, we focus our attention on the cross-currency and cross-maturity term structures of the forward premia to asses whether, jointly, they have incremental information content in predicting future spot exchange rate changes compared to the term structure of the forward premia of that specific spot rate. Using daily exchange rates of the US Dollar, Canadian Dollar, British Pound and Japanese Yen against the Euro, we are forced to reject the Forward Rate Unbiasedness Hypothesis both in bivariate and multivariate systems. Moreover, we verify that the information embedded in the above mentioned term structures produces an increase in the goodness of fit of the future spot rate changes. Finally, similarly to the term structure of the interest rate case, in which is pointed out the presence of a short run rate factor, we show that the term structure of the forward exchange rate has a different long run behaviour according to the maturity of the various rates.
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TL;DR: In this article, the authors investigate the implications of nominal rigidities for the risk premium and find that real exchange risks and staggered nominal contracts play a role in the determination of the risk premiums while habit persistence and asset market structure do not.
Abstract: This paper investigates implications of nominal rigidities for the risk premium. We use Obstfeld and Rogoff (1998) type DSGE model equipped with nominal rigidities, imperfect market competitions, a production sector, and a money-in-the-utility function. For a monthly frequency, we generate volatility relations derived from violations of unbiasedness in the forward exchange rate and the autocorrelation of the forward premium observed in the data. However, we fail to obtain the same results when the quarterly decision interval is considered mainly because of time varying uncertainty and the discount factor. We also find that real exchange risks and staggered nominal contracts play a role in the determination of the risk premium while habit persistence and asset market structure do not. Finally, our analysis shows that one should be cautious about measuring the risk premium from the regression of ex post predictable returns