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| Author: | Roll, R. Yan, S. |
| Title: | An explanation of the forward premium "puzzle" |
| Journal: | European Financial Management
2000 : JUN, VOL. 6:2, p. 121-148 |
| Index terms: | FOREIGN EXCHANGE TIME SERIES RISK |
| Language: | eng |
| Abstract: | Existing literature reports a puzzle about the forward rate premium over the spot foreign exchange rate. The premium is often negatively correlated with subsequent changes in the spot rate. This defies economic intuition and possibly violates market efficiency. Rational explanations include non-stationary risk premia and econometric mis-specifications, but some embrace the puzzle as a guide to profitable trading. |
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