The Forward Premium Puzzle and the Euro

Jun Nagayasu

Research output: Working paperDiscussion paper

Abstract

This paper evaluates the forward premium puzzle using the Euro exchange rate. Unlike previous studies, our analysis utilizes time-varying parameter methods and is based on two approaches for evaluation of the puzzle; the traditional approach analyzing the sensitivity of interest rate di§erentials to the forward premium, and the other looking into deviations from the covered interest rate parity (CIRP) condition. Then we provide evidence that the forward premium puzzle indeed became more prominent around the time of the recent crisis periods such as the Lehman Shock and the Euro crisis. This is also shown to be consistent with a deterioration in the CIRP.
LanguageEnglish
Place of PublicationGlasgow
PublisherUniversity of Strathclyde
Pages1-25
Number of pages26
Volume13
Publication statusPublished - 2013

Fingerprint

Forward premium puzzle
Interest rate parity
Forward premium
Euro crisis
Interest rates
Deterioration
Exchange rates
Time-varying parameters
Deviation
Evaluation

Keywords

  • forward premium puzzle
  • risk premium
  • time-varying parameters
  • financial crisis

Cite this

Nagayasu, J. (2013). The Forward Premium Puzzle and the Euro. (17 ed.) (pp. 1-25). Glasgow: University of Strathclyde.
Nagayasu, Jun . / The Forward Premium Puzzle and the Euro. 17. ed. Glasgow : University of Strathclyde, 2013. pp. 1-25
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Nagayasu, J 2013 'The Forward Premium Puzzle and the Euro' 17 edn, University of Strathclyde, Glasgow, pp. 1-25.

The Forward Premium Puzzle and the Euro. / Nagayasu, Jun .

17. ed. Glasgow : University of Strathclyde, 2013. p. 1-25.

Research output: Working paperDiscussion paper

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Nagayasu J. The Forward Premium Puzzle and the Euro. 17 ed. Glasgow: University of Strathclyde. 2013, p. 1-25.