1. The Term Structure of Currency Futures' Risk Premia
- Author
-
Casper G. de Vries, Jürgen von Hagen, and Kerstin Bernoth
- Subjects
Structure (mathematical logic) ,Economics and Econometrics ,uncovered interest parity ,G13 ,F37 ,Risk premium ,G15 ,Monetary economics ,Term (time) ,currency excess returns ,Interest rate parity ,Currency ,Price of risk ,Accounting ,ddc:330 ,Economics ,price of risk ,Capital asset pricing model ,capital asset pricing mode ,G12 ,futures rates ,forward premium puzzle ,Futures contract ,Finance ,F31 - Abstract
The use of futures instead of forwards exchange contracts completes the ma-turity spectrum of the correlation between spot yields and the premium. Wefind that the forward premium puzzle appears to be a precrisis phenomenonand is only observed for maturities longer than about 1 month. Differencesin the exposure to risk help to explain cross-sectional spreads in currency ex-cess returns. However, this only applies for medium and longer maturities.Considering that most studies that test the validity of a risk-based approachto currency excess returns focus on short maturity securities, this explainswhy this approach is so often rejected. Open access funding enabled and organized by Projekt DEAL
- Published
- 2021
- Full Text
- View/download PDF