The Forward Premium Puzzle in a Model of Imperfect Information: Theory and Evidence
8 Pages Posted: 31 Aug 1998 Last revised: 28 Dec 2014
Date Written: August 16, 2007
This paper studies the forward premium puzzle in a model with imperfect information. The model predicts fixed effects and conditional heteroskedasticity in the forward premium regression and provides a rationale for the evidence in Mayfield and Murphy (1992).
Keywords: Forward premium puzzle, imperfect information, Kalman filter, fixed effects, conditional heteroskedasticity
JEL Classification: F31
Suggested Citation: Suggested Citation