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The Pricing of Forward Contracts for Foreign Exchange, Journal of Political Economy

Abstract

This paper investigates the nature of observed deviations from the unbiased expectations hypothesis in the forward foreign exchange market. If these deviations are due to risk premia, then the same premia should be observed in nominal bonds denominated in different currencies. This condition imposes testable restrictions on the parameters of a multivariate regression model. The empirical results are consistent with a world in which time-varying risk premia cause the observed deviations from unbiased expectations.

Type

Article

Author(s)

Robert Korajczyk

Date Published

1985

Citations

Korajczyk, Robert. 1985. The Pricing of Forward Contracts for Foreign Exchange. Journal of Political Economy. 93(2): 346-368.

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