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Foreign Exchange Return Predictability: Rational Expectations Risk Premium vs. Expectational Errors.
- Source :
-
East Asian Economic Review (EAER) . Dec2018, Vol. 22 Issue 4, p467-505. 39p. - Publication Year :
- 2018
-
Abstract
- We propose a simple identification scheme for the causes of the violations of uncovered interest parity. Our method uses the serial dependence patterns of excess returns as a criterion for judging performance of economic models. We show that a mean reverting component in excess returns, representing a violation of uncovered interest parity, mainly contributes to generating different serial dependence patterns of excess returns: rational expectations risk premium models tend to generate negative serial dependence of excess returns, while expectational errors models tend to generate positive serial dependence. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 25081640
- Volume :
- 22
- Issue :
- 4
- Database :
- Academic Search Index
- Journal :
- East Asian Economic Review (EAER)
- Publication Type :
- Academic Journal
- Accession number :
- 133822656
- Full Text :
- https://doi.org/10.11644/KIEP.EAER.2018.22.4.351