Rui Mano
International Monetary Fund
Research Department
Open Economy Division
700 19th Street NW
Washington, D.C. 20431
E-Mail: 
Institutional Affiliation: International Monetary Fund
NBER Working Papers and Publications
| July 2014 | Forward and Spot Exchange Rates in a Multi-currency World
with Tarek A. Hassan: w20294
Separate literatures study violations of uncovered interest parity (UIP) using regression-based and portfolio-based methods. We propose a decomposition of these violations into a cross-currency, a between-time-and-currency, and a cross-time component that allows us to analytically relate regression-based and portfolio-based facts, and to estimate the joint restrictions they place on models of currency returns. Subject to standard assumptions on investors’ information sets, we find that the forward premium puzzle (FPP) and the “dollar trade” anomaly are intimately linked: both are driven almost exclusively by the cross-time component. By contrast, the “carry trade” anomaly is driven largely by cross-sectional violations of UIP. The simplest model the data do not reject features a cross-sect... Published: Tarek A Hassan & Rui C Mano, 2019. "Forward and Spot Exchange Rates in a Multi-Currency World*," The Quarterly Journal of Economics, vol 134(1), pages 397-450.
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