IDEAS home Printed from https://ideas.repec.org/a/ids/ijmefi/v2y2009i2p115-125.html
   My bibliography  Save this article

Inference on forward exchange rate risk premium: reviewing signal extraction methods

Author

Listed:
  • Ramaprasad Bhar
  • Carl Chiarella

Abstract

The existence of risk premium is thought to be the reason why forward exchange rate is not an unbiased predictor of future spot exchange rate. In this paper we review two methodologies for inferring this unobserved risk premium based upon signal extraction mechanism. One approach relies on the theory of derivatives pricing that relates historical and risk neutral measures via market price of risk. The other approach specifies the risk premium in the historical measure directly. We compare these two methods in predicting future spot exchange rates and contrast these with that of random walk forecast.

Suggested Citation

  • Ramaprasad Bhar & Carl Chiarella, 2009. "Inference on forward exchange rate risk premium: reviewing signal extraction methods," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 2(2), pages 115-125.
    • Handle: RePEc:ids:ijmefi:v:2:y:2009:i:2:p:115-125
    as

    Download full text from publisher

    File URL: http://www.inderscience.com/link.php?id=24835
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chung Y. Peter & Zhou Zhong-guo, 2012. "The Pricing of Time-Varying Exchange Rate Risk in the Stock Market: A Nonparametric Approach," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(1), pages 1-33, January.
    2. Aziz Chouikh & Abdelwahed Trabelsi, 2014. "Modeling Risk Premia in Forward Foreign Exchange Rates as Unobserved Components: The Model Identification Problem," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(3), pages 119-135, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ids:ijmefi:v:2:y:2009:i:2:p:115-125. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sarah Parker (email available below). General contact details of provider: http://www.inderscience.com/browse/index.php?journalID=218 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.