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Title: |
Rationality and the Risk Premium on the
Australian Dollar |
| Author: |
Felmingham,
Bruce S.; Mansfield, Peter |
| Author
Affiliation: |
U Tasmania |
| Source: |
International Economic Journal, Autumn 1997, v. 11, no. 3, pp. 47-59 |
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Publication Date: |
Autumn 1997 |
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Abstract: |
A model of the forward rate error of the
USD/AUD spot exchange rate is fitted to daily data for the period 15th
December 1983 to 31st December 1991. This provides a data set of 2034
daily trading observations. Explanations of the forecast error include a
risk premium represented by a constant plus the conditional variance
generated from a GARCH (1,1)-M analysis of the error process and
information variables in the form of lagged forward rate errors. The
following conclusions are drawn from estimates for the full sample: the
USD/AUD spot rate is subject to a constant premium; there is little
evidence to support a time varying component and the market is
influenced by lagged forward errors. Sub period estimation confirms
these results, although a time varying premium is evident prior to the
February 1985 depreciation. The economic implications of these findings
are discussed. |
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