|
Archive@NYU >
Stern School of Business >
Salomon Center >
Derivatives Research >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27381
|
| Title: | The Information in Long-Maturity Forward Rates: Implications for
Exchange Rates and the Forward Premium Anomaly |
| Authors: | Boudoukh, Jacob
Richardson, Matthew
Whitelaw, Robert F. |
| Issue Date: | 16-Nov-2005 |
| Series/Report no.: | S-DRP-05-06 |
| Abstract: | The forward premium anomaly is one of the most robust puzzles in
financial economics. We recast the underlying parity relation in terms
of cross-country differences between forward interest rates rather than
spot interest rates with dramatic results. These forward interest rate
differentials have statistically and economically significant forecast
power for annual exchange rate movements, both in- and out-of-sample,
and the signs and magnitudes of the corresponding coefficients are
consistent with economic theory. Forward interest rates also forecast
future spot interest rates and future inflation. Thus, we attribute much
of the forward premium anomaly to the anomalous behavior of shortterm
interest rates, not to a breakdown of the link between fundamentals and
exchange rates. |
| URI: | http://hdl.handle.net/2451/27381 |
| Appears in Collections: | Derivatives Research
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
