Evidence of Risk Premiums in Foreign Currency Futures Markets

The Review of Financial Studies, Vol. 5, No. 1, pp.65-83, 1992

19 Pages Posted: 7 Oct 2011

See all articles by Thomas H. McCurdy

Thomas H. McCurdy

University of Toronto - Rotman School of Management

Ieuan G. Morgan

Queen's University - Smith School of Business

Date Written: October 7, 2011

Abstract

Weekly data for foreign currency futures prices are examined for evidence of risk premiums. Covariance risks are measured with respect to the excess returns from benchmark portfolios for consumption and wealth. When the parameters representing the prices of the covariance risks are held constant, no risk premiums are detected. However, when these prices are allowed to vary with the conditional expected returns and variances of the benchmark portfolios, possibly reflecting changing investment opportunities, strong evidence of risk premiums is obtained.

Keywords: time-varying price of risk, time-varying quantity of risk, conditional asset pricing model, recursive preferences

Suggested Citation

McCurdy, Thomas H. and Morgan, Ieuan G., Evidence of Risk Premiums in Foreign Currency Futures Markets (October 7, 2011). The Review of Financial Studies, Vol. 5, No. 1, pp.65-83, 1992, Available at SSRN: https://ssrn.com/abstract=1940440

Thomas H. McCurdy (Contact Author)

University of Toronto - Rotman School of Management ( email )

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HOME PAGE: http://www-2.rotman.utoronto.ca/~tmccurdy

Ieuan G. Morgan

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada