TY  - JOUR
AU  - Hodrick,Robert J.
AU  - Srivastava,Sanjay
TI  - An Investigation of Risk and Return in Forward Foreign Exchange
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1180
PY  - 1983
Y2  - August 1983
UR  - http://www.nber.org/papers/w1180
L1  - http://www.nber.org/papers/w1180.pdf
N1  - Author contact info:
Robert J. Hodrick
Graduate School of Business
Columbia University
3022 Broadway
New York, NY 10027
Tel: 212/854-3413
Fax: 212/316-9219
E-Mail: rh169@columbia.edu

Sanjay Srivastava
Deopartment of Risk Management and Insurance
Georgia State University
E-Mail: ssrivastava@gsu.edu
AB  - 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.
ER  -