Forward premiums as unbiased predictors of future currency depreciation: a non-parametric analysis

Article Abstract:

The use of forward exchange rate premium in predicting future currency depreciation proves to be ineffective. A study using distribution-free, non-parametric approach reveals that forward exchange rate premium tends to be biased as shown by cross exchange rate violation, especially when used against the US dollar exchange rates. Results also show that forward premium contains either no or wrong information regarding the prediction of future currency depreciation.

Foreign Currency Management, Currency devaluation, Devaluation (Currency)

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The effect of political risk on the forward exchange bias: the case of elections

Article Abstract:

An empirical study of election information from Canada, France, the UK and the US demonstrates the viability of the theory that political events do affect foreign exchange prices. Moreover, economic policymaking and economic risk are seriously affected by political events as well as political uncertainty brought about by national elections. Suggestions are, therefore, made to include political information as a variable in economic models concerning forward bias.

Economic aspects, Elections, Current events

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Exchange rate shocks, currency options and the Siegel paradox

Article Abstract:

The relationship between risk and premium in foreign exchange rates is investigated. Investors from different countries are shown to require varying premiums for the same type of risk. Premiums differences are influenced by the volatility of the source of risk rather than investor demands. Arbitrage pricing also has no influence on fair price even during opportunities of perfect hedging.

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