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Title:The forward premium puzzle and latent factors day by day PDF Logo
Authors:Bernoth, Kerstin
von Hagen, Jürgen
de Vries, Casper
Issue Date:2012
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2012: Neue Wege und Herausforderungen für den Arbeitsmarkt des 21. Jahrhunderts - Session: Exchange Rates E16-V1
Abstract:We use futures instead of forward rates to study the complete maturity spectrum of the forward premium puzzle from two days to six months. At short maturities the slope coeffcient is positive, but these turn negative as the maturity increases to the monthly level. Futures data allow us to control for the influence of an unobserved factor that can be decomposed into a contract-speci fic and a time-to-maturity e ffect. Once we do this, we nd that the coefficients on the forward premium are much closer to one. The latent factor is shown to be related to conventional proxies of risk.
JEL:F31
F37
G13
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2012: Neue Wege und Herausforderungen für den Arbeitsmarkt des 21. Jh.

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