This paper studies the Forward Premium Puzzle in a setting where investors doubt the specification of their models, and thus engage in robust portfolio strategies (Hansen and Sargent, 2008). It shows that an empirically plausible concern for model misspecification can explain the Forward Premium...

Based on an infinite sequence of observations Yn=Xn+an, n=1,2,... with independent identically distributed random variables X1,X2,... with known distribution representing noise and constants a1,a2,... representing signal, it is impossible to distinguish with zero error probabilities the class of...