Nagayasu, Jun (2012): The Forward Premium Puzzle And Risk Premiums.
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This paper re-evaluates the forward premium puzzle using the Euro/US dollar exchange rate. Unlike previous studies, a state-space model is used to measure the significance of this puzzle by estimating the time-specific parameter. Then we provide evidence that the forward premium puzzle became more prominent around the time of the Lehman Shock, and this additional effect of the puzzle is more clearly seen in longer maturity assets. Furthermore, while the risk premium does not tell the whole story about the time-varying puzzle, we show nevertheless that the puzzle can be lessened by this extra factor particularly at times of financial crises.
|Item Type:||MPRA Paper|
|Original Title:||The Forward Premium Puzzle And Risk Premiums|
|Keywords:||forward premium puzzle; risk premium, time-varying parameters; financial crises|
|Subjects:||F - International Economics > F3 - International Finance|
|Depositing User:||Nagayasu Jun|
|Date Deposited:||06 Nov 2012 11:23|
|Last Modified:||16 Feb 2017 12:59|
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