NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

An Investigation of Risk and Return in Forward Foreign Exchange

Robert J. Hodrick, Sanjay Srivastava

NBER Working Paper No. 1180
Issued in August 1983
NBER Program(s):   ITI   IFM

This paper examines the determination of risk premiums in foreign exchange markets. The statistical model is based on a theoretical model of asset pricing, which leads to severe cross-equation constraints. Statistical tests lead to a rejection of these constraints. We examine the robustness of these tests to time variation in parameters and to the presence of heteroskedasticity. We find that there is evidence for heteroskedasticity and that the conditional expectation of the risk premium is a nonlinear function of the forward premium. Accounting for this nonlinearity, the specification appears to be time invariant. Out of sample portfolio speculaton is profItable but risky.

download in pdf format
   (438 K)

email paper

This paper is available as PDF (438 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w1180

Published: Hodrick, Robert J. and Sanjay Srivastava. "An Investigation of Risk and Return in Forward Foreign Exchange." Journal of International Money and Finance, Vol. 3, No. 1, (April 1984), pp. 5-29. citation courtesy of

Users who downloaded this paper also downloaded these:
Hansen and Hodrick Risk Averse Speculation in the Forward Foreign Exchange Market: An Econometric Analysis of Linear Models
Bekaert w4818 The Time Variation of Risk and Return in Foreign Exchange Markets: A General Equilibrium Perspective
Hodrick and Srivastava w1749 The Covariation of Risk Premiums and Expected Future Spot Exchange Rates
Bilson w0474 The "Speculative Efficiency" Hypothesis
Jorion Risk and Turnover in the Foreign Exchange Market
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us