Showing papers on "Forward exchange rate published in 2006"

The Forward Exchange Rate Bias Puzzle is Persistent: Evidence from Stochastic and Non Parametric Cointegration Tests

Abstract: An important puzzle in international finance is the failure of the forward exchange rate to be a rational forecast of the future spot rate. It has often been suggested that this puzzle may be resolved by using better statistical procedures that correct for both non-stationarity and nonnormality in the data. We document that even after accounting for non-stationarity, nonnormality, and heteroscedasticity using parametric and non-parametric tests on data for over a quarter century, US dollar forward rates for horizons ranging from one to twelve months for the major currencies, the British pound, Japanese yen, Swiss franc, and the German mark, are generally not rational forecasts of future spot rates. These findings of non-rationality in forward exchange rates for the major currencies continue to be puzzling especially as these foreign exchange markets are some of the most liquid asset markets with very low trading costs.

Long Maturity Forward Rates of Major Currencies are Stationary

Abstract: Using eight unit root tests and a stationarity test and three decades of monthly data for the currencies between the US, Germany, UK and Switzerland, we find that, while spot exchange rates are non-stationary, long maturity forward rates are stationary.

Some Empirical Observations on the Forward Exchange Rate Anomaly

Abstract: This paper looks at issues surrounding the testing of fractional integration and nonlinearity in relation to the forward exchange rate anomaly of Fama (1984) Recent tests for fractional integration and nonlinearity are discussed and used to investigate the behaviour of three exchangerates and premiums The findings provide some support for I(1) exchange rates but suggest fractionality for premiums, mixed evidence on cointegration, and a strong possibility of time-wise nonlinearity Significantly, when the nonlinearity is modelled using a random field regression, the forward anomaly disappears

Some Empirical Observations on the Forward Exchange Rate Anomaly

Abstract: This paper looks at issues surrounding the testing of fractional integration and nonlinearity in relation to the forward exchange rate anomaly of Fama (1984). Recent tests for fractional integration and nonlinearity are discussed and used to investigate the behaviour of three exchange rates and premiums. The findings provide some support for I(1) exchange rates but suggest fractionality for premiums, mixed evidence on cointegration, and a strong possibility of time-wise nonlinearity. Significantly, when the nonlinearity is modelled using a random field regression, the forward anomaly disappears.

A Unified Theory of Ten Financial Puzzles

Abstract: This paper o?ers a unified explanation for a host of puzzles about stocks, bonds and exchange rates. It builds on the Barro-Rietz view, that risk premia come from the probability of macroeconomic crises or disasters, and adds a variable intensity of disaster that can be asset-specific. Agents have stochastic assessments (which can be rational or behavioral) about the fundamental value that their assets would have if a disaster occurred. The model appears to explain the following puzzles on stocks, bonds and exchange rates: (i) equity premium puzzle (ii) risk-free rate-puzzle (iii) excess volatility puzzle (the fact that equity prices are so volatile) (iv) value-growth puzzle ( stocks with high price-dividend ratios have abnormally low future future) (v) upward sloping nominal yield curve (vi) Fama-Bliss findings that a higher slope of the yield curves predicts higher risk premia on bond returns (vii) corporate bond spread puzzle (the spread between corporate and government bond rates are higher than warranted by the U.S. historical experience) (viii) counter cyclical equity premium (ix) characteristics vs covariance puzzles (simple numbers such as the price-dividend ratio of stocks predict future returns better that covariances with economic factors (x) partial predictability of aggregate stock market returns by price/dividend ratios, and the consumption-asset ratio has explanatory power for future returns (xi) high price of deep out-of the money puts, and, last but not least, (xii) forward exchange rate premium puzzle (a.k.a. uncovered interest rate parity puzzle). Using the recent technique of linearity-generating processes (Gabaix 2007), the model is very tractable, and all prices are in closed form. Finally, the paper proposes a specification that integrate rare disasters with a standard real business cycle economy. In that specification, rare disasters change the asset pricing implications of the model, while keeping its business cycle implications completely unchanged.

¿Es posible predecir el comportamiento del tipo de cambio? Una aplicación del modelo de Lucas al caso español

Abstract: The goal of every investment is to obtain maximum return with minimum risk. Foreign exchange risk could cause that a portfolio return differs from the fundamentals of the assets which composes it. In this paper we study, by using the calibration method, the behaviour and size of the spot, forward exchange rate and forward premium for the Spanish market in a general equilibrium model. This research considers different risk aversion coeffi cients, opening levels in the economy and subjective discount factors. Results replicate closely the actual exchange rate behaviour in the long run.

The Forward Exchange Rate Bias Puzzle: Evidence from New Cointegration Tests

Abstract: An important puzzle in international finance is the failure of the forward exchange rate to be a rational forecast of the future spot rate. It has often been suggested that this puzzle may be resolved by using better statistical procedures that correct for both non-stationarity and non-normality in the data. We document that even after accounting for non-stationarity, non-normality, and heteroscedasticity using parametric and non-parametric tests on data for over a quarter century, US dollar forward rates for horizons ranging from one to twelve months for the major currencies, the British pound, Japanese yen, Swiss franc, and the German mark, are generally not rational forecasts of future spot rates. These findings of non-rationality in forward exchange rates for the major currencies continue to be puzzling especially as these foreign exchange markets are some of the most liquid asset markets with very low trading costs. I. Introduction

Tendenciosidade do Mercado Futuro de Câmbio: Risco Cambial ou Erros Sistemáticos de Previsão?

Abstract: The forward exchange rate is widely used in international fin ance whenever the analysis of the expected depreciation is needed. It is also used to ident ify currency risk premium. The difference between the spot rate and the forward rate (the forward premium) is supposed to be a predictor of the future movements of the spot rate. This prediction is hardly precise. The fact that the forward rate is a biased predictor of the fut ure spot rate may be attributed to a currency risk premium. The bias can also be attributed to systematic errors in forecasting the future depreciation of the currency. This paper analyzes the nature of the risk premium and of the forecast errors in using the forward rate. We examine the efficiency and rationality of the futures market in Brazil from April 1995 t o December 1998, a period of controled exchange rates.

Application for Determination of the Forward Exchange Rate in Access 2003

Abstract: The exchange rate set the present rate for a foreign currency transaction with payment or delivery at some future date. Forward rates are calculated by using the current exchange rate for the currency pair and the interest rates for the two currencies and allow you to lock in rate now for a future. This paper describes the formulas which determinate the forward exchange rate and how can we implement them in a short, but efficient informatics application.