Exchange rate risk premiums
Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal
|Journal / Publication||Journal of International Money and Finance|
|Publication status||Published - Apr 1993|
|Link to Scopus||https://www.scopus.com/record/display.uri?eid=2-s2.0-0000031390&origin=recordpage|
A state space model which allows for the covariation of risk premiums and unexpected rates of depreciation is used to study exchange rate risk premiums. We find that exchange rate risk premiums have a high degree of persistence and the covariance of risk premiums and unexpected rates of depreciation is negative. Regressions of the estimated risk premium on its determinants implied by the equilibrium model of Lucas (1982) show limited support for the model. (JEL F31). © 1993.