The Pricing of Forward Contracts for Foreign Exchange
Robert A. Korajczyk
Northwestern University - Kellogg School of Management
June 6, 1984
Journal of Political Economy, Vol. 93, No. 2, 1985
This paper investigates the nature of observed deviations from the unbiased expectations hypothesis in the forward foreign exchange market. If these deviations are due to risk premia then the same premia should be observed in nominal bonds denominated in different currencies. This condition imposes testable restrictions on the parameters of a mutivariate regression model. The empirical results are consistent with a world in which time varying risk premia cause the observed deviations from unbiased expectations.
Number of Pages in PDF File: 44
Keywords: Foreign exchange, uncovered interest parity, carry trade, forward market
JEL Classification: F3, F31, G1, G12, G15Accepted Paper Series
Date posted: September 29, 2011
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