The Pricing of Forward Contracts for Foreign Exchange

44 Pages Posted: 29 Sep 2011  

Date Written: June 6, 1984

Abstract

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.

Keywords: Foreign exchange, uncovered interest parity, carry trade, forward market

JEL Classification: F3, F31, G1, G12, G15

Suggested Citation

Korajczyk, Robert A., The Pricing of Forward Contracts for Foreign Exchange (June 6, 1984). Journal of Political Economy, Vol. 93, No. 2, 1985. Available at SSRN: https://ssrn.com/abstract=1935393

Robert A. Korajczyk (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Kellogg School of Management
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Evanston, IL 60208
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847-491-8336 (Phone)
847-491-5719 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/directory/korajczyk_robert.aspx#research

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