Showing papers on "Forward exchange rate published in 2011"

Emerging Market Currency Excess Returns

Abstract: We consider the excess return from 20 internationally tradable emerging market (EM) currencies against the US dollar It has two contributions. First, we document stylized facts about EM currencies. EM currencies have provided significant equity-like excess returns against major currencies, but with low volatility. Picking EM currencies with a relatively high forward premium raises the portfolio return substantially. Second, our calculation incorporates institutional features of the foreign exchange market, such as lags in settling spot contracts, FX swaps, and bid/ offer spreads. Transaction costs arising from bid/ offer spreads are less than one-fifth of what is typically presumed in the literature. (JEL C58, F31, G15) examine the foreign exchange excess return (the difference between the forward exchange rate and the spot rate at maturity) from taking long positions in 20 internationally tradable emerging market (EM) currencies for the US dollar (USD) investors. Our paper has two contributions. First, it contributes to the vast literature on the failure of uncovered interest rate parity (UIP)1 by providing corroborating facts and some new ones for EM currencies. We do so by utilizing a propriety dataset (Gilmore and Hayashi 201 1) that we believe is superior to publicly available alternatives. Second, our calculation of the excess return takes into account institutional features of the foreign exchange market. They include lags in settling spot contracts, foreign exchange (FX) swaps2, and bid/offer spreads. There are two classes of tests of UIP. One, sometimes called the unconditional

Pricing currency options with support vector regression and stochastic volatility model with jumps

Abstract: This paper presents an efficient currency option pricing model based on support vector regression (SVR) This model focuses on selection of input variables of SVR We apply stochastic volatility model with jumps to SVR in order to account for sudden big changes in exchange rate volatility We use forward exchange rate as the input variable of SVR, since forward exchange rate takes interest rates of a basket of currencies into account Therefore, the inputs of SVR will include moneyness (spot rate/strike price), forward exchange rate, volatility of the spot rate, domestic risk-free simple interest rate, and the time to maturity Extensive experimental studies demonstrate the ability of new model to improve forecast accuracy

Assessment of Consensus Forecasts Accuracy: The Czech National Bank Perspective *

Abstract: This paper compares the accuracy of the Consensus forecasts for euro-area GDP growth, consumer and producer price inflation, and the USD/EUR exchange rate to those of the European Commission, International Monetary Fund, and Organization for Economic Co-operation and Development, and also to the naive forecast and the forecast implied by the forward exchange rate. In the period from 1994 to 2009 the Consensus forecasts for effective euro-area consumer price inflation and GDP growth beat the alternatives by a difference which is typically statistically significant. The results are more diverse for the pre-crisis sample (1994–2007). The Consensus forecast for euro-area producer price inflation significantly outperforms the naive forecast in the short term. Finally, the Consensus forecast for the USD/EUR exchange rate during the period from 2002 to 2009 is more precise than the naive forecast and the forecast implied by the forward rate.

Assessment of Consensus Forecasts Accuracy: The Czech National Bank Perspective

Abstract: This paper compares the accuracy of the Consensus forecasts for euro-area GDP growth, consumer and producer price inflation, and the USD/EUR exchange rate to those of the European Commission, International Monetary Fund, and Organization for Economic Co-operation and Development, and also to the naive forecast and the forecast implied by the forward exchange rate. In the period from 1994 to 2009 the Consensus forecasts for effective euro-area consumer price inflation and GDP growth beat the alternatives by a difference which is typically statistically significant. The results are more diverse for the pre-crisis sample (1994–2007). The Consensus forecast for euro-area producer price inflation significantly outperforms the naive forecast in the short term. Finally, the Consensus forecast for the USD/EUR exchange rate during the period from 2002 to 2009 is more precise than the naive forecast and the forecast implied by the forward rate.

Forward rate unbiasedness hypothesis in the tunisian exchange rate market

Abstract: Based on a linear framework, this paper aims to examine the relationship between future spot rates and forward exchange rates using USD-TND data, thanks to traditional regressions and to the Vector Error Correction Model (VECM) in order to check if the Unbiasedness Forward Exchange Rate (UFER) hypothesis is satisfied and if the forward premiums contain valuable information useful to forecast the subsequent path that will be taken by spot exchange rates. The empirical analysis reveals that the UFER hypothesis is rejected and that the forward premium is a crucial tool, at short term, to detect the future movements of spot exchange rates. A potential enrichment of such a paper will rely on a non linear

The Integration of Financial Markets in GCC Countries

Abstract: The real interest parity (RIP) condition states that the interest rate differential between two economies is equivalent to the differential between the forward exchange rate and the spot exchange rate. This study examines the integration of financial markets in the GCC countries by verifying the validity of RIP in their economies. Using univariate and different panel unit root tests, we find evidence supporting the RIP theory, which indicates that the financial markets in these countries are well integrated and that the adoption of a common currency would be relatively easy.

A Comparative Study of Forward Rate Unbiased Hypothesis in Tunisian and Indian Foreign Exchange Markets

Abstract: In the field of financial economics, the “Forward Rate Unbiased Hypothesis” (FRUH) has been the subject of intensive scrutiny by researchers. Empirical evidences suggest that there are major differences between the spot rates and the forward rates and the findings have not been able to yield any concrete evidence that the forward exchange rate is an unbiased predictor of the future spot exchange rate. In financial literature, majority of the work has focused on the forward rate and the spot rate of the currency of a single country. Cross country FRUH comparison has been rare. This paper is an attempt to fill the lacuna by comparing the FRUH in the Indian and the Tunisian Forex Market and to provide economic explanations for the divergences in findings. The dataset used in this study consists of 238 weekly observations of the Tunisian spot and forward exchange rates and Indian spot and forward exchange rate for the four-year period starting 01 April 2004 to 16 October 2008. Analysis shows that the FRUH does not hold in both the markets. However, FRUH seems to be more severe in the Indian markets than in the Tunisian markets. Furthermore, the slope coefficient’s in the Indian case were negative as opposed to the Tunisian case suggesting that India is a more developed economy as compared to Tunisia. Based on our evidences, we highlight some reasons as to why the FRUH fails and suggest areas for further research

Studies in international finance and corporate remuneration

Abstract: This thesis makes four different contributions to the literature on international finance and corporate governance. Firstly, it examines the forward exchange rate bias and the forward premium puzzle, using weekly and daily data from thirty-one developed and emerging economies during 1999-2010. The forward-spot relationship is analysed through both a time series and a panel construction. Secondly, it investigatges empirically the relationship between the e3xchange rate and the term structure of interest rates, as proposed by Lim and Ogaki (eg Fama 1984: Lim and |Okaki 2004) using data from sixteen emerging economies during 1993-2001. Thirdly, it examines the impact of the term structure of the interest rates on bond risk in G7 countries and it tests the stability of this relation during pre- and post-financial crisis periods. Fourthly, this disseration exploes the link between a director's pay and corporate performance using a panel data set of FTSE 350 companies during 2004-2009. The empirical results deomonstrate a robust cointegrating forward-spot relationship and support the forward rate unbiasedness with high frequency data: however, the forward premium puzzle remains in most sample economies. The term structure of interest rates plays an important role in exchange rate determination and the cointegrating relationship is stable despite the presence of a number of exchange rate regime changes for the emerging economies. In this study the short rate is considered as a proxy for economic uncertainty and the yield spread is considered as a proxy for business condition. The findings show statistically significant effects of the short rate and yield spread on the bond risk for G7 economies, implying that interest rate policy may be important in reducing market volatility. Lastly, a positive and significant relationship is identified between corporate performance and a director's pay in both levels and first difference regression specifications, and through both directions. However, this link has broken down since recent financial crisis