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Forward and Spot Exchange Rates” by Fama (1984)Revisited

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  • Ulugbek Olimov

    (Center for Economic Research)

Abstract

The main objective of this paper is to review and to replicate the paper 'Forward and Spot Exchange Rates' by Fama (1984). I used non-overlapping monthly data for three major currencies, and divided the sample into two, the 'replication' and the 'extension' periods. The results of this replication paper once more confirmed the conclusions of Fama (1984). After reviewing some post-Fama (1984) empirical studies in this topic, two main conclusions are drawn: (1) there is a general agreement that both components of forward rates vary through time; and (2) there is less agreement that the variance of the premium component is large relative to the variance of the expected depreciation of the spot rate.

Suggested Citation

  • Ulugbek Olimov, 2005. "Forward and Spot Exchange Rates” by Fama (1984)Revisited," International Finance 0508012, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpif:0508012
    Note: Type of Document - pdf; pages: 10
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    References listed on IDEAS

    as
    1. Kenneth A. Froot & Jeffrey A. Frankel, 1989. "Forward Discount Bias: Is it an Exchange Risk Premium?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(1), pages 139-161.
    2. Hodrick, Robert J. & Srivastava, Sanjay, 1986. "The covariation of risk premiums and expected future spot exchange rates," Journal of International Money and Finance, Elsevier, vol. 5(1, Supple), pages 5-21, March.
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    Cited by:

    1. Aziz Chouikh & Abdelwahed Trabelsi, 2014. "The Determinants of Risk Premia in Forward Foreign Exchange (FX) Markets," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(2), pages 19-28, April.

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    More about this item

    Keywords

    Forward and spot exchange rates;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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