Skip to main content
Kent Academic Repository

Foreign Exchange Implied. Variance and the Forward Premium Puzzle

Pavlidis, Efthymios, Shackleton, Mark B., Voukelatos, Nikolaos (2012) Foreign Exchange Implied. Variance and the Forward Premium Puzzle. In: 2nd International Conference of the Financial Engineering and Banking Society (FEBS), June 2012, London. (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided) (KAR id:30040)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided.
Official URL:
http://www.rcem.eu/media/37755/full_programme.pdf

Abstract

We explore the hypothesis that Jensen’s Inequality is related to the magnitude

of the commonly observed difference between forward rates and the

subsequent realizations of spot exchange rates. Compared to the standard

specification, it is shown that using the option-implied variance of the spot rate

as an additional regressor in the unbiased forward specification results in slope

coefficients that are closer to their theoretical value of unity. Furthermore,

implied variance is found to have a higher explanatory power over future spot

returns compared to that of the forward premium. Our empirical findings are

consistent with the hypothesis that the time-varying risk-premium documented

in previous studies contains a Jensen’s term of the future spot variance.

Item Type: Conference or workshop item (Paper)
Subjects: H Social Sciences > HG Finance
Divisions: Divisions > Kent Business School - Division > Department of Accounting and Finance
Depositing User: Nikolaos Voukelatos
Date Deposited: 07 Aug 2012 08:47 UTC
Last Modified: 16 Nov 2021 10:08 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/30040 (The current URI for this page, for reference purposes)

University of Kent Author Information

Voukelatos, Nikolaos.

Creator's ORCID: https://orcid.org/0000-0001-8272-2901
CReDIT Contributor Roles:
  • Depositors only (login required):

Total unique views for this document in KAR since July 2020. For more details click on the image.