Journal article
Forward Rate, Spot Rate and Risk Premium: An Empirical Analysis
Weltwirtschaftliches Archiv, v 124(1), pp 74-88
01 Jan 1988
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Abstract
This paper develops a scheme to measure the risk premium, which is argued to be directly related to the forward premium. The risk premium varies over time due to either the changing forward premium or the nonconstant estimated coefficients, or both. The inclusion of risk premium in forecasting exchange rates out predicts the model using the forward rate alone. The test results demonstrate that the general efficiency market hypothesis (risk premium model) is superior to the simple efficiency market hypothesis in the prediction of future spot rates. Moreover, the random walk hypothesis does not perform better than the risk premium model.
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Details
- Title
- Forward Rate, Spot Rate and Risk Premium: An Empirical Analysis
- Creators
- Thomas ChiangThomas Hindelang
- Publication Details
- Weltwirtschaftliches Archiv, v 124(1), pp 74-88
- Publisher
- Springer Nature
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- [Retired Faculty]
- Web of Science ID
- WOS:A1988N096200005
- Scopus ID
- 2-s2.0-51249178416
- Other Identifier
- 991019184101204721
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- Web of Science research areas
- Economics
- International Relations