Skip to main content
Article thumbnail
Location of Repository

Rethinking the forward premium puzzle in a non-linear framework

By Jerry Coakley and Ana-Maria Fuertes

Abstract

The forward premium puzzle needs to be reformulated since extant\ud studies address the negative slopes associated with the long dollar\ud swings of the 1980s. By contrast the insignificant coefficients from\ud recent data spans can be explained by an unbalanced regression problem\ud caused by asymmetries in spot returns. These stem from market\ud frictions such as transaction costs and are associated with overshooting\ud of spot rates. Monte Carlo experiments show that asymmetries\ud and overshooting effects produce widely dispersed and statistically insignificant slope coefficients whose small sample mean is close to zero

Topics: HB, QA
Publisher: Warwick Business School Financial Econometrics Research Centre
Year: 2001
OAI identifier: oai:wrap.warwick.ac.uk:1821

Suggested articles

Citations

  1. and Quantitative Analysis Statistical Sinica Manchester School Annals of Statistics Review of Economics and Statistics Journal of International Money and Finance The Manchester School Journal of Policy Modeling

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.