TY  - JOUR
AU  - Hodrick,Robert J.
AU  - Srivastava,Sanjay
TI  - The Covariation of Risk Premiums and Expected Future Spot Exchange Rates
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1749
PY  - 1986
Y2  - July 1986
UR  - http://www.nber.org/papers/w1749
L1  - http://www.nber.org/papers/w1749.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  - Fama(1984) analyzed the variability and the covariation of risk premiums and expected rates of depreciation. We employ three statistical techniques that do not suffer from a potential bias in Fama's analysis, but we nevertheless confirm his findings. In contrast to his interpretation the results are not necessarily at variance with the predictions of a theoretical model of the risk premium. Increases in expected rates of depreciation of the dollar relative to five foreign currencies are positively correlated with increases in the expected profitability of purchasing these currencies in the forward market, and risk premiums have larger variances than expected rates of depreciation.
ER  -