Abstract

http://ssrn.com/abstract=6667
 
 

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Explaining Forward Exchange Bias ... Intraday


Richard K. Lyons


University of California, Berkeley; National Bureau of Economic Research (NBER)

Andrew K. Rose


University of California - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)


JOURNAL OF FINANCE, Vol 50 No 4, September 1995

Abstract:     
Intraday interest rates are zero. Consequently, a foreign exchange dealer can short a vulnerable currency in the morning, close this position in the afternoon, and never face an interest cost. This tactic might seem especially attractive in times of crisis, since it suggests an immunity to the central bank's interest rate defense. In equilibrium, however, buyers of the vulnerable currency must be compensated on average with an intraday capital gain as long as no devaluation occurs. That is, currencies under attack should typically appreciate intraday. Using data on intraday exchange rate changes within the European Monetary System, we find this prediction is borne out.

JEL Classification: G15, F31

Accepted Paper Series


Not Available For Download

Date posted: August 25, 1998  

Suggested Citation

Lyons, Richard K. and Rose, Andrew K., Explaining Forward Exchange Bias ... Intraday. JOURNAL OF FINANCE, Vol 50 No 4, September 1995. Available at SSRN: http://ssrn.com/abstract=6667

Contact Information

Richard K. Lyons (Contact Author)
University of California, Berkeley ( email )
Haas School of Business
Berkeley, CA 94720
United States
510-642-1059 (Phone)
510-643-1420 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Andrew K. Rose
University of California - Haas School of Business ( email )
Berkeley, CA 94720
United States
510-642-6609 (Phone)
510-642-4700 (Fax)
HOME PAGE: http://faculty.haas.berkeley.edu/arose
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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