English, Article edition: The Forex Forward Puzzle: The Career Risk Hypothesis Fang Liu; Piet Sercu

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Bookmark: http://trove.nla.gov.au/version/108350
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  • article
Language
  • English

Edition details

Title
  • The Forex Forward Puzzle: The Career Risk Hypothesis
Author
  • Fang Liu
  • Piet Sercu
Physical Description
  • article
Notes
  • We conjecture that the forward puzzle may reflect career risks. When professional investors observe public danger signals about a currency, they require a premium for holding it. We find evidence of this in Exchange Rate Mechanism rates. As deep discounts do signal danger, we next specify nonlinear variants of the Fama regression to capture this risk. We also decompose the forward premium into a long-memory trend and short-term component. We find empirical evidence for a career risk premium; risk is in fact dominant in the trend component while the short-term component loads more on expectations. All confidence intervals are calculated via Monte Carlo. Copyright (c) 2009, The Eastern Finance Association.
  • RePEc:bla:finrev:v:44:y:2009:i:3:p:371-404
Language
  • English
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