Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86520
Authors: 
Bernoth, Kerstin
von Hagen, Jürgen
de Vries, Casper G.
Year of Publication: 
2007
Series/Report no.: 
Tinbergen Institute Discussion Paper 07-033/2
Abstract: 
The forward premium puzzle (FPP) is the negative correlation between the forward premium and the realized exchange rate return at maturities of a month and beyond. Some recent evidence shows that at maturities of multiple years and at the highest intra day frequency the correlation is positive and close to one. This paper contributes by using futures data instead of forwards to complete the maturity spectrum at the (multi-) day level. We find that the correlation only slowly turns negative as the number of days to maturity is increased to the monthly level. The typical shape of the premium correlation with regard to the forward maturity length appears to be V-shaped.
Subjects: 
exchange rates
market efficiency
forward premium puzzle
uncovered interest parity
futures rates
JEL: 
F31
F37
G13
Document Type: 
Working Paper

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