We investigate the relation between the risk premia observed in forward foreign exchange markets and international equity markets using the Arbitrage Pricing Theory. If returns on well-diversified equity portfolios explain movements in agents' intertemporal marginal rate of substitution then the...

This paper investigates the nature of observed deviations from the unbiased expectations hypothesis in the forward foreign exchange market. If these deviations are due to risk premia then the same premia should be observed in nominal bonds denominated in different currencies. This condition...