Abstract
In this paper, we examine whether risk premiums are significant in explaining the deviations from the uncovered interest rate parity (UIP) condition in an emerging Indian currency futures market. In particular, we explore the unbiasedness of futures quotes as a predictor of the future spot exchange rate to understand the forward premium anomaly condition. We report huge deviations from the UIP condition for all currencies considered and show that these deviations are explained by the risk premium. The realized risk premiums for all currencies are found to be negative and significantly different from zero, which suggests that investors are awarded for taking short positions in the foreign currency. The realized risk premiums in turn are found to be negatively related to the current spot rate returns and positively to the futures premium, conditional variance of spot rate returns, and the dividend yield.
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Artikel in diesem Heft
- Invited Paper
- The Simplest Non-Expected Utility Model for Lottery and Portfolio Choices
- Articles
- House Price Models for Banking and Insurance Applications: The Impact of Property Characteristics
- An Empirical Examination of Risk Premiums in the Indian Currency Futures Market
- A Bayesian Pricing of Longevity Derivatives with Interest Rate Risks
- Optimal Price Setting and Insurer Capital Management in a Multiple Line Context
Artikel in diesem Heft
- Invited Paper
- The Simplest Non-Expected Utility Model for Lottery and Portfolio Choices
- Articles
- House Price Models for Banking and Insurance Applications: The Impact of Property Characteristics
- An Empirical Examination of Risk Premiums in the Indian Currency Futures Market
- A Bayesian Pricing of Longevity Derivatives with Interest Rate Risks
- Optimal Price Setting and Insurer Capital Management in a Multiple Line Context