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Journal Article
Efficiency and the flexible exchange rate system
Working Paper
The risk premium in the foreign exchange market
Working Paper
The forecast ability of risk-neutral densities of foreign exchange
We estimate the process underlying the pricing of American options by using higher-order lattices combined with a multigrid method. This paper also tests whether the risk-neutral densities given from American options provide a good forecasting tool. We use a nonparametric test of the densities that is based on the inverse probability functions and is modified to account for correlation across time between our random variables, which are uniform under the null hypothesis. We find that the densities based on the American option markets for foreign exchange do quite well for the forecasting ...
Report
Interbank interest rates as term structure indicators
Interbank fixed income claims are a rich but neglected source of information on the term structure of interest rates and interest rate expectations. The first half of this paper describes the information content of two types of over-the-counter interest rate derivatives, forward rate agreements and interest rate swaps. Interbank interest rates and derivatives lend themselves well to a particular technique for fitting zero-coupon curves. The second half of this paper present this technique, along with some examples of how it can be used to gain insights into market views on interest rates and ...
Working Paper
Why is the forward exchange rate forecast biased? A survey of recent evidence
Forward exchange rate unbiasedness is rejected in tests from the current floating exchange rate era. This paper surveys advances in this area since the publication of Hodrick's (1987) survey. It documents that the change in the future exchange rate is generally negatively related to the forward premium. Properties of the expected forward forecast error are reviewed. Issues such as the relation of uncovered interest parity to real interest parity, and the implications of uncovered interest parity for cointegration of various quantities are discussed. The modeling and testing for risk premiums ...
Working Paper
An equilibrium model of spot and forward exchange rates
Journal Article
Risk aversion, efficient markets and the forward exchange rate
Report
Price discovery in the foreign currency futures and spot market
In this paper, we compare price discovery in the foreign exchange futures and spot markets during a period in which the spot market was less transparent but had higher volume than the futures market. We develop a foreign exchange futures order flow measure that is a proxy for the order flow observed by Chicago Mercantile Exchange pit traders. We find that both foreign currency futures and spot order flow contain unique information relevant to exchange rate determination. When we measure contributions to price discovery using the methods of Hasbrouck and of Gonzalo and Granger, we obtain ...