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Was it risk? Or was it fundamentals? Explaining excess currency returns with kernel smoothed regressions

Title
Was it risk? Or was it fundamentals? Explaining excess currency returns with kernel smoothed regressions
Author
김건호
Keywords
Forward premium anomaly; Local Deviation from Uncovered Interest Parity; Kernel smoothing; Uniform inference; Macroeconomic fundamentals; Frequentist model averaging
Issue Date
2015-12
Publisher
ELSEVIER SCIENCE BV
Citation
JOURNAL OF EMPIRICAL FINANCE, v. 34, Page. 99-111
Abstract
This paper uses recently developed kernel smoothing regression procedures and uniform confidence bounds to investigate the forward premium anomaly. These new statistical methods estimate the local time-varying slope coefficient of the regression of spot returns on the lagged interest rate differential. Uniform confidence bands are used to test when uncovered interest parity is violated. The estimated betas in the forward premium smoothed regression are found to vary substantially over time and to be partially explicable in terms of lagged fundamentals and money growth volatilities arising from risk premium. Frequentist model averaging procedures indicate the relative importance of these variables in terms of explaining movements in the betas and hence the apparent causes of regimes where UIP fails. (C) 2015 Elsevier B.V. All rights reserved.
URI
http://www.sciencedirect.com/science/article/pii/S0927539815000900?via%3Dihubhttp://hdl.handle.net/20.500.11754/30263
ISSN
0927-5398; 1879-1727
DOI
10.1016/j.jempfin.2015.08.007
Appears in Collections:
COLLEGE OF ECONOMICS AND FINANCE[S](경제금융대학) > ECONOMICS & FINANCE(경제금융학부) > Articles
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