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The effects of news on exchange rates when the risk premium is considered

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  • Van Newby

Abstract

Poor performance of forward exchange rates to predict future spot rates has caused researchers to analyse other approaches to exchange rate determination. One such approach is to treat exchange rates as prices of foreign currency assets. Thus, these prices should be highly sensitive to new information. This paper analyses, as news variables, unanticipated changes in the USA and home country money supplies, incomes, and interest rates. Two different methods are used to account for the unobservable risk premium. Results suggest that news does not significantly influence exchange rates for the four countries involved-Germany, Italy, Canada and Japan. Possible reasons are discussed.

Suggested Citation

  • Van Newby, 2002. "The effects of news on exchange rates when the risk premium is considered," Applied Financial Economics, Taylor & Francis Journals, vol. 12(2), pages 147-153.
    • Handle: RePEc:taf:apfiec:v:12:y:2002:i:2:p:147-153
    DOI: 10.1080/09603100110090109
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    1. repec:aut:wpaper:201301 is not listed on IDEAS
    2. Dobromł Serwa, 2006. "Do emerging financial markets react to monetary policy announcements? Evidence from Poland," Applied Financial Economics, Taylor & Francis Journals, vol. 16(7), pages 513-523.
    3. Xinsheng Lu & Ling Qu & Ying Zhou, 2015. "The Impact of Monetary Surprises on Australian Financial Futures Markets: An Insight into Cash Rate Target Announcements," Australian Economic Papers, Wiley Blackwell, vol. 54(3), pages 151-166, September.

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