Foreign Currency Futures

51 Pages Posted: 3 May 2004

See all articles by Robert J. Hodrick

Robert J. Hodrick

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Sanjay Srivastava

Georgia State University-Robinson College of Business

Date Written: October 1985

Abstract

The theoretical nature of risk premiums in foreign currency futures markets is derived and studied empirically. Estimation problems encountered in using futures data are discussed. Since forward rates and futures prices are demonstrated to be approximately equal, and because risk premiums in forward markets are highly variable, consistency of the data requires time variation in daily risk premiums in the futures market. Unbiasedness of daily futures prices as predictors of the following day's futures price is rejected for all currencies. Reconciliation of daily and monthly data requires positive serial correlation in daily risk premiums.

Suggested Citation

Hodrick, Robert J. and Srivastava, Sanjay, Foreign Currency Futures (October 1985). NBER Working Paper No. w1743. Available at SSRN: https://ssrn.com/abstract=338804

Robert J. Hodrick (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

365 Fifth Avenue, 5th Floor
New York, NY 10016-4309
United States

Sanjay Srivastava

Georgia State University-Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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