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) |
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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) |
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