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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27156
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| Title: | The Forward Premium Anomaly: Three Examples in Search of a Solution |
| Authors: | Backus, David K.
Foresi, Silverio
Telmer, Chris I. |
| Keywords: | forward and spot exchange rates
risk premium
pricing kernels
bond pricing |
| Issue Date: | 1-Jul-1994 |
| Series/Report no.: | FIN-94-006 |
| Abstract: | Perhaps the most puzzling feature of currency prices is the tendency for
high interest rate currencies to appreciate, when the expectations
hypothesis suggest the reverse. This forward premium anomaly has been
attributed, by some, to a time-varying risk premium, but theory has yet
to produce a risk premium with the requisite properties. We characterize
the risk premium in a general theoretical framework and construct three
examples that illustrate features a theoretical explanation of the
anomaly is likely to have. |
| URI: | http://hdl.handle.net/2451/27156 |
| Appears in Collections: | Finance Working Papers
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