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Title: |
On the Robustness of Forward Market Efficiency
in Consumption-Based Models of Exchange Rates |
| Author: |
Arroyo,
Cristino R., III |
| Author
Affiliation: |
U FL |
| Source: |
International Economic Journal, Summer 1994, v. 8, no. 2, pp. 95-114 |
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Publication Date: |
Summer 1994 |
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Abstract: |
Euler equation models with consumption
risk premia have shown promise of reconciling exchange rate data with
the hypothesis of efficiency of the forward exchange rate. We examine
the robustness of these models to variation in (1) the period utility
function, (2) assumptions about the underlying forward trading
mechanism, (3) the measure of consumption in the risk premium and (4)
the weighting matrix applied to the model orthogonality conditions. In
generalized method of moments estimations using a six-currency sample we
find evidence that forward efficiency is robust to perturbations of the
first two kinds, but not to the latter two. |
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