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Discussion Paper Details

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Title: More Evidence on the Dollar Risk Premium in the Foreign Exchange Market

Author(s): Dennis Bams, Kim Walkowiak and Christian C Wolff

Publication Date: January 2003

Keyword(s): forward exchange and risk

Programme Area(s): Financial Economics and International Macroeconomics

Abstract: In this article, we develop and estimate an econometric panel data model to capture the common dynamics in dollar risk premia in various forward foreign exchange rates. The common component in the dollar risk premia is highly significant and embodies a common pattern of positive serial correlation (persistence) for the pound, the yen and the mark. Interestingly, our results indicate that the dynamics of the forward prediction error can be attributed almost exclusively to this dollar-related common component. Our evidence also suggests that the three different foreign currencies? dollar risk premia ?respond? to the common factor to different degrees.

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Bibliographic Reference

Bams, D, Walkowiak, K and Wolff, C. 2003. 'More Evidence on the Dollar Risk Premium in the Foreign Exchange Market'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3726