NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Explaining Forward Exchange Bias..Intraday

Richard K. Lyons, Andrew K. Rose

NBER Working Paper No. 4982
Issued in January 1995
NBER Program(s):International Finance and Macroeconomics

Intraday interest rates are zero. Consequently, a foreign exchange dealer can short a vulnerable currency in the morning, close this position in the afternoon, and never face an interest cost. This tactic might seem especially attractive in times of crisis, since it suggests an immunity to the central bank's interest rate defense. In equilibrium, however, buyers of the vulnerable currency must be compensated on average with an intraday capital gain as long as no devaluation occurs. That is, currencies under attack should typically appreciate intraday. Using data on intraday exchange rate changes within the EMS, we find this prediction is borne out.

download in pdf format
   (176 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4982

Published: Journal of Finance, vol. 50, no. 4, pp. 1321-1329, September 1995 citation courtesy of

Users who downloaded this paper also downloaded* these:
McCallum w4113 A Reconsideration of the Uncovered Interest Parity Relationship
Bekaert, Wei, and Xing w8795 Uncovered Interest Rate Parity and the Term Structure
Heckman w13934 Econometric Causality
Dutt and Mitra w10084 Labor Versus Capital in Trade-Policy Determination: The Role of General-Interest and Special-Interest Politics
Kim, Shim, and Kim The Role of the Government in Promoting Industrialization and Human Capital Accumulation in Korea
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

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

Contact Us