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Any security’s expected return can be decomposed into its “carry” and its expected price appreciation, where carry is a model-free characteristic that can be observed in advance. While carry has been studied almost exclusively for currencies, we find that carry predicts returns both in the...
Persistent link: https://www.econbiz.de/10011083673
We investigate the predictive information content in foreign exchange volatility risk premia for exchange rate returns. The volatility risk premium is the difference between realized volatility and a model-free measure of expected volatility that is derived from currency options, and reflects...
Persistent link: https://www.econbiz.de/10011084715
This Paper uses currency option data from the BMF, the Commodities and Futures exchange in Sao Paulo, Brazil, to investigate market expectations on the Brazilian Real-US dollar exchange rate from October 1994 through to March 1999. Using options data, we derive implied probability density...
Persistent link: https://www.econbiz.de/10005656384
The purpose of the UDROP proposal is to prevent debt rollover crises for foreign-currency-denominated debt instruments. For such liabilities, there is no international analogue to the domestic lender of last resort or to domestic deposit insurance. UDROP stands for Universal Debt Rollover Option...
Persistent link: https://www.econbiz.de/10005661683
We use futures instead of forward rates to study the complete maturity spectrum of the forward premium puzzle from two days to six months. At short maturities, the slope coefficient is positive, but it turns negative as the maturity increases to the monthly level. Futures data allow us to...
Persistent link: https://www.econbiz.de/10008468651
This Paper proposes a vector equilibrium correction model of stock returns that exploits the information in the futures market, while allowing for both regime-switching behaviour and international spillovers across stock market indices. Using data for three major stock market indices since 1989,...
Persistent link: https://www.econbiz.de/10005114365
This paper uses Reuters exchange rate data to investigate the contributions to the price discovery process by individual banks in the foreign exchange market. We propose multivariate time series models as well as models in tick time to study the dynamic relations between the quotes of individual...
Persistent link: https://www.econbiz.de/10005662015
We use the structural factor model proposed by Forni, Giannone, Lippi and Reichlin (2007) to study the effects of monetary policy. The advantage with respect to the traditional vector autoregression model is that we can exploit information from a large data set, made up of 112 US monthly...
Persistent link: https://www.econbiz.de/10005662372
This paper attempts to identify the sources of real exchange rate fluctuations since the collapse of the Bretton Woods period. We use a structural VAR model with recursive long-run restrictions to decompose the real exchange rate series into three components, associated with supply, demand and...
Persistent link: https://www.econbiz.de/10005667040
The paper provides SVAR estimates for four open economies: the UK, Canada, Sweden and Denmark, making explicit a monetary policy reaction function and taking account of exchange rate targeting practices. The object of the analysis is to examine the idea that an independent money and exchange...
Persistent link: https://www.econbiz.de/10005789208