One puzzle in international finance is the finding that the forward foreign exchange rate is a poor predictor of the future spot foreign exchange rate. It has been postulated that this finding could be explained by the presence of unobservable risk premiums. Theory, however, is silent as to the...

Using a panel data approach, we find statistically significant evidence that bid-ask spreads and deviations from purchasing power parity (PPP) are related to the forward prediction error of ten major U.S. dollar exchange rates over the post Plaza Accord period. Previous literature suggests that...

Using pooled data, we study the forward discount bias (FDB) of 24 British pound and 24 euro exchange rates. The results show a FDB during “non-crisis” periods, which is more pronounced for advanced than emerging economies. This finding is especially striking during the period of the European...