To make high-quality research more accessible and easier to explore.

Fields:
2 results ✕ Clear filters

The Effect of Errors in Variables on Tests for a Risk Premium in Forward Exchange Rates

Journal of Finance 1982 37(3), 667-677
ABSTRACT Conventional tests for a risk premium in the price of forward exchange use the subsequently realized spot rate as a proxy for prior expectations. Use of this proxy creates a serious errors‐in‐variables problem which makes it difficult to reject the null hypothesis of zero risk premium. Use of a better proxy for expectations indicates the presence of a risk premium in the forward exchange rate of all countries analyzed.