English, Article, Journal or magazine article edition: Interpreting Tests of Forward Discount Bias Using Survey Data on Exchange Rate Expectations Kenneth A. Froot; Jeffrey A. Frankel

User activity

Share to:
 
Bookmark: http://trove.nla.gov.au/version/140985
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Interpreting Tests of Forward Discount Bias Using Survey Data on Exchange Rate Expectations
Author
  • Kenneth A. Froot
  • Jeffrey A. Frankel
Physical Description
  • preprint
Notes
  • Survey data on exchange rate expectations are used to divide the forward discount into expected depreciation and a risk premium. Our starting point is the common test oh whether the forward discount is an unbiased predictor of future changes in the spot rate. We use the surveys to decompose the bias into a protion attributable to the risk premium and a portion attributable to systematic prediction errors. The survey data suggest that our findings of both unconditional and conditional bias are overwhelmingly due to systematic expectational errors. Regressions of future changes in the spot rate against the forward discount do not yield insights into the sign, size or variability of the risk premium as is usually thought.We test directly the hypothesis of perfect substitutability, and find support for it on that changes in the forward discount reflect, one for one , changes in expected depreciation. The "random-walk" view that expected depreciation is zero os thus rejected; expected depreciation is even significantly more variable than the risk premium. In fact, investors would do better if they always reduced fractionally the magnitude of expected depreciation. This is the same result that Bilson and many others have found with forward market data, but now it cannot be attributed to a risk premium.
  • RePEc:nbr:nberwo:1963
Language
  • English
Contributed by
OAIster

Get this edition

Other links

  • Set up My libraries

    How do I set up "My libraries"?

    In order to set up a list of libraries that you have access to, you must first login or sign up. Then set up a personal list of libraries from your profile page by clicking on your user name at the top right of any screen.

  • All (1)
  • Unknown (1)
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.

User activity


e.g. test cricket, Perth (WA), "Parkes, Henry"

Separate different tags with a comma. To include a comma in your tag, surround the tag with double quotes.

Be the first to add a tag for this edition

Be the first to add this to a list

Comments and reviews

What are comments? Add a comment

No user comments or reviews for this version

Add a comment