Deopartment of Risk Management and Insurance
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NBER Working Papers and Publications
|October 1985||Foreign Currency Futures|
with : w1743
The theoretical nature of risk premiums in foreign currency futures markets is derived and studied empirically. Estimation problems encountered in using futures data are discussed. Since forward rates and futures prices are demonstrated to be approximately equal, and because risk premiums in forward markets are highly variable, consistency of the data requires time variation in daily risk premiums in the futures market. Unbiasedness of daily futures prices as predictors of the following day's futures price is rejected for all currencies. Reconciliation of daily and monthly data requires positive serial correlation in daily risk premiums.
Published: Hodrick, Robert J. and Sanjay Srivastava. "Foreign Currency Futures," Journal of International Economics, Vol. 22, No. 1/2, Feb. 1987, pp. 1-24. citation courtesy of
|The Covariation of Risk Premiums and Expected Future Spot Exchange Rates|
with : w1749
Fama(1984) analyzed the variability and the covariation of risk premiums and expected rates of depreciation. We employ three statistical techniques that do not suffer from a potential bias in Fama's analysis, but we nevertheless confirm his findings. In contrast to his interpretation the results are not necessarily at variance with the predictions of a theoretical model of the risk premium. Increases in expected rates of depreciation of the dollar relative to five foreign currencies are positively correlated with increases in the expected profitability of purchasing these currencies in the forward market, and risk premiums have larger variances than expected rates of depreciation.
Published: Hodrick, Robert J. and Sanjay Srivastava. "The Covariation of Risk Premiums and Expected Future Spot Exchange Rates," with comment by Jacob A. Frenkel. Journal of International Money and Finance, Vol. 5, Supplement, (March 1986), pp. 5-30. citation courtesy of
|August 1983||An Investigation of Risk and Return in Forward Foreign Exchange|
with : w1180
This paper examines the determination of risk premiums in foreign exchange markets. The statistical model is based on a theoretical model of asset pricing, which leads to severe cross-equation constraints. Statistical tests lead to a rejection of these constraints. We examine the robustness of these tests to time variation in parameters and to the presence of heteroskedasticity. We find that there is evidence for heteroskedasticity and that the conditional expectation of the risk premium is a nonlinear function of the forward premium. Accounting for this nonlinearity, the specification appears to be time invariant. Out of sample portfolio speculaton is profItable but risky.
Published: Hodrick, Robert J. and Sanjay Srivastava. "An Investigation of Risk and Return in Forward Foreign Exchange." Journal of International Money and Finance, Vol. 3, No. 1, (April 1984), pp. 5-29. citation courtesy of